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TOKYO, Japan — Corporate bankruptcies in Japan have surged to their highest level in over a decade, driven primarily by persistent inflation, soaring labor costs, and an acute shortage of manpower. According to a report released on Tuesday by Tokyo Shoko Research, the number of business failures in 2025 rose by 2.9% from the previous year, reaching 10,300 cases.

This marks the second consecutive year that bankruptcies have surpassed the 10,000 mark and represents the highest figure since 2013, a period heavily influenced by the aftermath of the Great East Japan Earthquake.

Small Businesses Bear the Brunt
The data reveals a stark reality for Japan’s small-to-medium enterprises (SMEs). Small-scale bankruptcies with debts under 100 million yen (approx. $700,000) accounted for 76.6% of the total cases. While the number of failures increased, the total aggregate debt decreased by 32.1% to 1.59 trillion yen, indicating that the crisis is concentrated among micro-enterprises and local businesses rather than large corporations.

Sector-wise, the service industry (including restaurants and entertainment) saw the most significant impact with 3,478 cases, followed by the construction industry (2,014 cases) and manufacturing (1,186 cases).

The "Labor Shortage" Crisis
A critical factor behind this trend is the deepening labor crisis. Bankruptcies explicitly attributed to manpower shortages spiked by 36.0%, totaling 397 cases. Within this category:

152 cases were caused by unsustainable hikes in personnel expenses.
135 cases resulted from an inability to recruit any staff at all.
Additionally, "cost-of-living" bankruptcies—driven by high energy prices and raw material costs—rose by 9.3% to 767 cases. Businesses that managed to survive the pandemic are now finding themselves unable to pass increased costs onto consumers while simultaneously facing the end of COVID-era government financial support.

A Grim Outlook for 2026
Analysts at Tokyo Shoko Research warn that this upward trend is likely to continue throughout 2026. The convergence of multiple economic pressures—including rising interest rates, repayment of pandemic-era loans, and geopolitical uncertainties such as potential U.S. tariff hikes and strained Sino-Japanese relations—is expected to further squeeze profit margins.

"Enterprises that failed to recover their business performance during the support period are now hitting a wall as principal and interest repayments begin," the report noted.