Enterprise Bankruptcy Law of Japan Fall stimulus, credit schemes

Sept. 8 (Bloomberg) — Japanese corporate bankruptcies fell for the first time in three months in August as companies found it easier to borrow and government spending fueled demand.

Business failures declined 1 percent from a year earlier to 1,241 cases, Tokyo Shoko Research Ltd. said in Tokyo today.

Efforts by the Bank of Japan and the government to encourage lending helped businesses stay afloat in the wake of the country’s deepest postwar recession. Companies have also benefited from more than $2 trillion in worldwide government stimulus that encouraged consumers to buy cars and electronics.

“For now, it appears that we’re past the worst with the emergency programs,” said Hiroshi Miyazaki, chief economist in Tokyo at Shinkin Asset Management Co. “Production has been recovering with the stimulus,” especially at industries that qualify for Japan’s “eco-point” incentives, he said.

Japanese factories boosted output for a fifth month in July, and the economy grew for the first time in more than a year last quarter. Outgoing Prime Minister Taro Aso’s 25 trillion yen ($269 billion) in extra spending provided consumers with incentives to buy fuel-efficient cars and eco- friendly household appliances.

Shipments of flat-panel TVs, which qualify for the program, rose 41 percent in July from a year earlier, according to the Japan Electronics and Information Technology Industries Association.

Credit Programs

Credit programs have also helped.

The Bank of Japan began buying corporate debt from banks this year, driving down borrowing costs for businesses that issue bonds. The government expanded the lending capacity of state-affiliated entities and set aside 30 trillion yen to guarantee loans made to small and midsized businesses.

The Development Bank of Japan and Shoko Chukin Bank have together provided 2.4 trillion yen in emergency loans since December. The Japan Finance Corporation expanded a loan program to 12 trillion yen from 9 trillion yen in April.

Even so, earnings are still falling and the economic recovery may be losing momentum. Profits at companies with more than 10 million yen in capital slid 53 percent last quarter from a year earlier, the Finance Ministry said last week.

The unemployment rate climbed to a postwar high of 5.7 percent in July and wages slumped for a 14th month. Consumer prices slid a record 2.2 percent from a year earlier.

The drop in prices is squeezing profits even as sales begin to improve, threatening smaller businesses that lack capital and access to financing, Shinkin’s Miyazaki said. “Banks’ lending standards are still very tight,” he said.

Lending at Japanese banks rose 1.9 percent in August, the slowest pace in 11 months, a Bank of Japan report showed today.

Izumi Products Co., a manufacturer of electric shavers and other household appliances, filed for bankruptcy last month with 16.2 billion yen in debt. Cost cuts didn’t make up for losses following the global recession and a stronger yen, the company said in a statement on its Web site.

Silver Ox Inc., a clothing maker, filed for bankruptcy on Sept. 1, becoming the country’s 19th publicly traded company to fail in 2009, Bloomberg data show. Last year, 33 listed companies went bankrupt in Japan, the most in the postwar era.

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

By Aki Ito