Japan Bankruptcies Climb at Fastest Pace in 8 Years

By Toru Fujioka

Oct. 8 (Bloomberg) -- Japan's corporate bankruptcies jumped 34 percent last month, the fastest pace in eight years, as exports slumped and credit-market turmoil engulfed the world's second-largest economy.

Bankruptcies rose to 1,408 cases in September from the same month a year earlier, Tokyo Shoko Research Ltd. said in a report in Tokyo today. That's the biggest jump since March 2000, when cases rose 38.6 percent, according to Bloomberg data.

Japan's Nikkei 225 Stock Average tumbled 9.4 percent, the biggest rout since October 1987, on concern the global credit crisis will prolong the economy's stagnation. Corporate failures are rising at the steepest rate since Japan's banking crisis in 2000 as the credit shortage deprives businesses of cash.

``We're in the middle of a recession,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Real-estate and construction companies have been in a mini- bubble over the last few years because of all that money coming from abroad. Now that's withdrawn.''

The yen surged beyond 100 per dollar for the first time in six months after a plunge in Asian stocks prompted investors to reduce holdings of higher-yielding assets funded in Japan. The currency traded at 100.07 per dollar as of 5:03 p.m. in Tokyo. The Nikkei slumped to 9,203.32, the lowest since June 2003.

Human21 Corp. led a 31 percent increase in the number of real estate agents that went bust last month, today's report showed. The four biggest bankruptcies among publicly traded companies this year were all real-estate firms, according to data compiled by Bloomberg News. Construction bankruptcies increased 41 percent in September.


Property Slump

Banks cut lending as growth in Japan's property market slowed and the collapse of the subprime market in the U.S. kept potential buyers from making acquisitions. Developers are also being squeezed by higher prices for steel and other raw materials used in construction, and by a change in building-approval regulations in June 2007 that slowed applications.

The credit crisis is spreading to other industries, with smaller companies saying they are having a harder time securing funds needed to grow at a time when the economy is on the verge of a recession.

``It's definitely going to spread. Logically speaking it has to happen because exports are declining and we'll see a sharper decline in external demand,'' JPMorgan's Adachi said.

Failures in manufacturing rose 44 percent, Tokyo Shoko said. Transportation industry bankruptcies surged 133 percent, and in finance and insurance climbed 56 percent.

Lending `Severe'

``An increasing number of small firms have reported that their financial positions are weak, and lending attitudes of financial institutions are severe,'' the Bank of Japan said in its monthly economic assessment today. ``Certain industries have faced a worsening in funding conditions, as conditions for their bond issuance have deteriorated and financial institutions have become more cautious in extending credit.''

Companies that went bankrupt last month employed a total of 16,887 workers, the most this year, Tokyo Shoko said. Japan's unemployment rate climbed to 4.2 percent in August, the highest in two years.

Total liabilities rose to 5.36 trillion yen last month, the second highest in the postwar period, the report said, after Lehman Brothers Holdings Inc.'s Japan unit filed for bankruptcy in the country's second-biggest corporate collapse.

To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net