Japan: Economic Issues. (International Section)

By Inami, Tamotsu | Business Credit, April 2003 | Go to article overview

Japan: Economic Issues. (International Section)


Inami, Tamotsu, Business Credit


Japan, at one time the second largest economic power in the world, has been struggling for a long time now. The Japanese economy, based on traditional ways of doing business, went from being a thriving economy to one less and less successful in a changing world. It continued to sink lower as decision-making by those running the economic structure of the country flailed in indecisiveness, attempting to diagnose the problems and find solutions to them. As a result, Japan has become less and less attractive to American and European countries seeking to do business overseas.

Moreover, the Chinese economic boom is taking business away from Japan. The attitude of American and European companies interested in doing international business in Asia has become "think beyond Japan". China has replaced Japan as a place to outsource manufacturing to, due to its large and inexpensive labor pool.

Major Japanese research firms and institutions, economic magazines and economic reports by the government have likely further confused the issue. However, the Japanese people have made it clear that they are tired of the confusion. In this article, we will approach and analyze the grassroots economy and the connection between that and corporate bankruptcy in Japan. This should clearly illustrate the various issues and serious implications corporate life in Japan have had on the economy.

According to the Japanese government's plan, huge liabilities--now controlled by the government--would be transferred to the Industrial Revitalization Corporation (IRC). It is expected that the IRC handling of the liabilities will be one trigger that will determine whether the number of bankruptcies increases. Unification of the bad debtor segment may also contribute as a factor increasing the number of bankruptcies. The effect of unification will cause banks to increase their reserves for bad debts. The increase in reserves will highlight the banks with bad liabilities, and may well serve to amplify the problems within the Japanese banking system.

The second largest number of bankruptcies on record in Japan occurred in 2002 (January - December), totaling 19,458. This is the worst year on record in this collapsing economy. The number of bankruptcies in the services industry--2,239--was the largest ever. Twenty-nine listed companies went bankrupt. The 76 percent of total bankruptcies (19,458) were caused by an increasing and unrelenting decrease in sales, in a deflationary market. It is almost impossible to explain what went wrong in each of the 19,458 cases. That figure does not tell the whole story because a number of companies are still potential bankruptcies. Likewise, regardless of size, a number of companies are now simply out of business. Those numbers are hidden behind the number of bankruptcies.

Small- and medium-sized companies are taking defensive measures against the changing payment conditions. …

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