Japan Bankruptcies Hit Highest First-Half Count Since 2022 as Weak Yen Squeezes Small Firms

The Numbers

Forty-five Japanese firms went bankrupt between January and June of this year specifically citing the yen's weakness as the cause, according to a report by Tokyo Shoko Research published last Wednesday. The figure is up more than 30% from the same six-month window a year earlier, and represents the highest first-half count since Tokyo Shoko Research began tracking currency-attributed bankruptcies in 2022.

Bloomberg reported the findings, noting that the data underscores the widening economic damage from Japan's prolonged currency slump.

Why the Yen Is This Weak

The yen recently sank below a 40-year low. Several factors are compounding each other.

Real short-term interest rates in Japan remain negative, which has made Bank of Japan Governor Kazuo Ueda cautious about hiking aggressively. There is also a perception in markets that Japanese Prime Minister Takaichi does not want a stronger yen or higher rates, partly because yen weakness inflates the overseas earnings of Japan's largest export-oriented corporations.

Japanese financial institutions, particularly life insurers, have built large unhedged foreign-currency positions. The upfront cost of hedging, driven by the gap between Japanese and U.S. short-term rates, is steep, so many institutions have stayed exposed to foreign assets without currency protection. This positioning creates a structural bid against the yen.

The result, as ZeroHedge described it, is a feedback loop: yen weakness encourages further yen-short positioning, which drives the yen weaker still.

Who Gets Hurt

Large Japanese exporters benefit from a cheap yen. Their larger counterparts report higher yen-denominated profits when the dollar or euro buys more. This is the constituency that has, at minimum, tolerated this environment.

Small and mid-sized businesses face the opposite reality. They import raw materials, energy, and components priced in dollars. A weaker yen means those input costs rise in yen terms without any offsetting revenue gain, since most small firms sell domestically. The firms filing for bankruptcy are not major exporters. They are the suppliers, retailers, and service companies that form the backbone of Japanese employment. Tokyo Shoko Research's report showed bankruptcies were particularly concentrated in the wholesale sector. One example was Tokyo-based Merry Time Foods, an importer of crab, shrimp and tuna from other parts of Asia, which went bankrupt in May citing deteriorating profitability due to the weak yen and political instability in its supplier countries.

Smaller firms are also contending with mounting wage hike pressures amid persistent labor shortages, and often have limited ability to pass higher costs onto customers due to intense competition. "The weak yen is one contributing factor," said Yoshihiro Sakata, manager at Tokyo Shoko Research. "Combined with inflation and rising labor costs, it is creating a cumulative burden on businesses."

The Strongest Counterargument

Defenders of Japan's current policy path argue that hiking rates too fast carries its own serious risks. A rapid rise in Japanese Government Bond yields would dramatically increase debt servicing costs for a government already running persistent deficits. The BOJ's caution, from this perspective, is not negligence but a calculated response to an extraordinarily difficult fiscal situation. Ueda has hiked, just slowly, and that may be the least-bad option available.

The BOJ is not blind to yen weakness. It has intervened in currency markets on previous occasions when the yen hit levels that triggered political pressure, and it did execute a rate hike as part of its ongoing normalization effort. The debate is about speed and sequencing, not direction.

What the Data Actually Shows

The bankruptcy count is the concrete cost of that caution. Forty-five firms in six months, up more than 30% year over year, is a measurable outcome, not a theoretical risk. These are companies that employed real workers and could not absorb the cost spiral long enough for policy to adjust.

Tokyo Shoko Research has only been tracking this specific category since 2022, so the long-run historical comparison is limited. Within that window, this is the worst reading recorded. The research firm said in its report that currency-related bankruptcies are likely to remain elevated for some time, particularly among wholesalers, retailers and manufacturers with limited pricing power.

What Comes Next

The BOJ's rate path is the pivotal variable. Markets have been skeptical that the bank will move fast enough to matter for household and small-business balance sheets, and the yen's sustained weakness reflects that skepticism.

Tokyo Shoko Research's second-half data will be the clearest early indicator of whether the trend is accelerating, stabilizing, or reversing. If the second-half count eclipses the first half, the pressure on Ueda to move more aggressively and on the government to publicly endorse a stronger yen will become significantly harder to deflect.