Kiyosumi Hashimoto's factory is located in Chiba Prefecture, Japan. It is not a large scale factory, filled with machines, drilling tables, and parts cabinets. At its peak, dozens of workers were working simultaneously, but now, aside from Hashimoto himself, there are only two part-time workers left.

Hashimoto is reluctant to let go of the factory he has managed for many years, fearing that "all his efforts would go down the drain." However, under the poor management situation, the factory is on the verge of bankruptcy.

Difficulties in management and lack of manpower are a microcosm of many Japanese small and medium-sized enterprises at present.

According to a report by Kyodo News on October 9th, data released by Tokyo Shoko Research on the 8th showed that in the first half of the 2024 fiscal year (April-September), the number of corporate bankruptcies in Japan (with liabilities of more than 10 million yen, approximately 470,000 yuan) was 5,095, a nearly 18% increase year-on-year, reaching a new high since 2014.

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Japan has seen an increase in the number of bankrupt companies for three consecutive years, and the number of bankrupt companies is expanding across all industries and regions.

Various costs are rising.

Many Japanese companies that survived the three-year pandemic have collapsed in the spring of 2024.

In April of this year, a long-established restaurant in Hiroshima suddenly announced its closure.

The owner of the restaurant, Hitoshi Ito, said: "During the pandemic, business was very poor. At that time, there were government-led interest-free and unsecured loans (zero loans), which allowed us to finance and get through the crisis. However, after the pandemic, the customer flow did not return to the pre-pandemic level, and prices kept rising. My capital turnover was really tight, so I had to declare the company bankrupt."

Since the beginning of this year, Japan's inflation has continued to rise, coupled with the yen's continuous fluctuation around a 40-year low against the US dollar, which has brought continuous blows to small and medium-sized enterprises.According to reports, among the causes leading to the bankruptcy of small and medium-sized enterprises (SMEs) in Japan, "high price bankruptcies" due to inflation have reached 472 cases, setting a new historical record.

When classified by industry, the sector most severely affected by the rise in raw material prices is the construction industry, followed by manufacturing and retail.

A survey indicates that nearly 70% of Japanese SMEs are enduring high inflation but are struggling to pass on the increased costs to consumers, thus suffering significant operational impacts.

A corporate executive lamented, "Countless small companies are facing skyrocketing costs for raw materials and fuel. To ensure they can recruit labor, they are also forced to raise wages. Unable to pass on these increased expenses, they can only fall into operational difficulties."

The debt burden left over from the pandemic has further exacerbated the situation for these SMEs. From April to September of this year, the number of enterprises that went bankrupt due to an inability to repay zero-interest loans reached 310. In July of this year, the Bank of Japan decided to raise interest rates, which further led to enterprises facing a greater interest burden in loan financing.

Due to the rise in living costs and labor shortages, the Japanese Ministry of Labor decided to significantly increase the minimum wage to enhance household purchasing power. The new standard was implemented on October 1st, with plans to raise the minimum hourly wage to 1500 yen by the mid-2030s. Many large enterprises have already responded by increasing employee wages by 5.1%.

While raising the minimum wage is beneficial for workers and perhaps bearable for large corporations, it poses a financial challenge for many Japanese SMEs.

On October 10th, the Bank of Japan released the statistical flash report for the Corporate Goods Price Index (CGPI) in September, which stood at 123.1, a year-on-year increase of 2.8%. The increase was higher compared to the 2.6% rise in August, still maintaining a relatively high level. Previously, the Japanese Ministry of Internal Affairs and Communications announced that consumer prices (CPI) in August rose by 3.0% year-on-year, marking a 36th consecutive month of year-on-year increases, with the rate of increase expanding for four consecutive months.

For companies unable to withstand various cost increases, bankruptcy may be the only option left.At the same time, the issue of low birth rates that has plagued Japan for many years has also become a pain point in the management of small and medium-sized enterprises (SMEs).

Due to low birth rates and labor shortages, many Japanese SMEs are unable to recruit suitable personnel. A survey conducted on 100 major companies across Japan found that sixty percent of companies reported a severe shortage of staff.

Moreover, many of Japan's century-old businesses are facing a "lack of successors."

Japan has over 40,000 businesses with a history of more than a century, once described as a superpower with century-old shops. However, a report from the Japan Imperial Database Company shows that in the first half of this year, the number of bankruptcies among these century-old businesses surged by 95% compared to the same period last year, and the total number for the year may exceed the level during the global financial crisis.

In Japan, many small businesses are inherited by family members or trusted employees. But as the economic downturn drags on, some young people would rather go bankrupt than inherit the family business.

Furthermore, as more and more people choose to settle and live in big cities, the rural population gradually decreases, and companies located in remote areas are more affected. Some older Japanese feel that it is not honorable to pass on their family businesses to outsiders, preferring to sell or go bankrupt rather than pass on the legacy.

Japan's unemployment rate has remained below 3% for more than three years, almost the lowest among developed countries and economies. Behind the low unemployment rate, many SMEs complain about not being able to recruit employees or find successors.

The Japanese government's report estimates that by the end of 2025, 1.27 million small business owners will reach or exceed the age of 70. If these businesses do not have successors, they will have to close down. The report warns that this wave of closures will kill 6.5 million job opportunities and reduce Japan's economic scale by 22 trillion yen (approximately 104 billion yuan).

Shinji Kanzai, head of the Japanese consulting firm BATONZ, said: "After this wave of closures, it means that our unique Japanese craftsmanship, special services, and restaurant original recipes will be lost, which will severely damage Japanese culture and reduce the appeal of tourism."

These SMEs without successors can only try to find someone to take over.Ms. Suzuki, aged 61, resigned from her job to return home and assist her father, who is over eighty years old, in managing a trucking company. The company was established in 1975 and employs three truck drivers, none of whom are interested in taking over the business.

Fortunately, through an intermediary company, Suzuki was able to find a large logistics company to take over the management. "At least the company won't go bankrupt while my father is still alive; I don't know what will happen after that," Suzuki sighed with relief.