Japan bankruptcies to reach new levels By Bayan Rahman in Tokyo Published: October 16 2000 13:20GMT | Last Updated: October 17 2000 02:37GMT

Japanese corporate bankruptcies are likely to reach one of the highest post-war levels this year, a credit research company warned on Monday, one week after Japan saw its largest bankruptcy.

The number of failed companies rose 9.5 per cent in September year-on-year, the 11th monthly rise, according to Teikoku Databank. It said the number of companies going bankrupt was likely to top 19,000 this year, similar to 1998 and one of the highest levels in the past 50 years.

In the six months to September, bankruptcies leapt 19.6 per cent on year with debts up 48 per cent to %10,910bn, the first time liabilities have risen above %10,000bn in that period, it said. The data includes the failure of retailer Sogo, which filed for court protection from creditors in July.

"Financial institutions are less willing and able to prop up weak companies," said Jeffrey Young, head of economic analysis at Nikko Salomon Smith Barney in Tokyo. "The price outlook is still weak and that increases the real burden of servicing debt."

The Japanese economy has been showing contradicting signs recently but most private economists and the Bank of Japan believe the economy is recovering.

The Bank of Japan on Monday reiterated its view that the economy was gradually improving. However, it admitted that consumer spending remained sluggish because of persistent concerns about jobs and incomes, concerns that are likely to be fueled by high profile corporate failures such as that of Chiyoda Mutual Life Insurance last week. The insurer filed for court protection from its creditors last week, with debts of %2,940bn, making it Japan's largest bankruptcy.

Mikihiro Matsuoka, senior economist at Jardine Fleming Securities in Tokyo, said the number of employees affected by bankruptcies was likely to be higher in the year to March than in the previous year two years.

"The number of failures and the number of employees affected has been rising and this suggests (corporate) failures may have some negative impact on the economy," he said.

But Mr Young said: "The other side of the coin is new-business creation is up. Through to early summer, the growth rate of new business formation was accelerating and may even have been higher than bankruptcies, and this is fairly positive."

"The current level of bankruptcies is fairly high given the economy is recovering. It's a sign that to some degree there's been a shake out (of weak companies) going on."

http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3YODL5EEC&live=true&tagid=IXLT95DZ1BC

-- Carl Jenkins (Somewherepress@aol.com), October 17, 2000