Japan saw 4,990 corporate bankruptcies in H1 2025, up 1.19% year-on-year and the highest H1 tally since 2014. Small businesses bore the brunt: 172 firms collapsed directly due to labor shortages—a record—with 89.8% of failed companies employing fewer than 10 people. They faced a vicious cycle: forced to raise wages but unable to absorb costs, widening the "pay gap" with large corporations.
Cost pressures intensified: rising raw material prices and interest rates squeezed profits, even as total liabilities fell 4.27% to ¥690.2 billion. The end of COVID-19 aid accelerated the exit of weak firms. A modest services rebound offered little relief: June’s Economy Watchers Current Index inched up 0.6 to 45.0 (still below 50), with the Outlook Index rising 1.1 to 45.9. Summer clothing and leisure spending boosted sentiment (notably in Hokkaido), but real wages fell for the 22nd straight month, and the government issued its bleakest economic assessment in five years, signaling fragile domestic demand.
Trump’s 25% tariffs on Japan, set to take effect August 1, loom large. Economic Revitalization Minister Yoshinari Azusa warned of "soaring direct and indirect damage." Analysts note export-reliant sectors face immediate risks, raising recession odds after Q1 contraction. Small businesses could suffer a double blow: cost strains compounded by lost overseas buffers.
