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Over 500 businesses in Japan go bankrupt amid pandemic, including many eateries

The president, center, and employees of a picked vegetable shop in the northern Japan city of Yamagata are seen announcing the permanent closure of the store on May 31, 2020. (Mainichi/Nanami Hidaka)

TOKYO -- The novel coronavirus is not only threatening the lives of people, but also the survival of small- and mid-sized companies and stores, with over 500 businesses having gone bankrupt since February, according to investigations conducted by private credit research firms.

    The previous administration led by former Prime Minister Shinzo Abe was unable to save employers and employees even though it insisted that the greatest responsibility of politics was to "sustain employment," and laid out an emergency stimulus package that supposedly placed preventing corporate collapses as its top priority.

    "I've been unable to work in the kitchen, and I've lost my motivation to continue the business," the 69-year-old owner of a French restaurant in the Tokyo suburban city of Chofu said in a strained voice. The owner closed his restaurant in late March when novel coronavirus infections were spreading, and decided in mid-April to shut down the store permanently. He had been very fond of and taken pride in the restaurant, which provided tasty meals for 45 years.

    According to Tokyo Shoko Research Ltd., the number of businesses that went under due to the novel coronavirus reached 500 on Sept. 15. The industry that saw the greatest number of bankruptcy cases was eateries, with a total of 70 cases. The clothing industry, which was affected by the temporary closures of retail shops, followed with 54 stores going out of business.

    Research by Teikoku Databank Ltd. similarly found that 500 businesses had gone bankrupt by Sept. 8, with the largest number, or 69 cases, comprising eateries. The restaurant industry has weak foundations when it comes to managing businesses, and is easily affected by temporary closures and shorter business hours. Although there was a wave of large companies going bankrupt during the 2008 global financial crisis triggered by the collapse of Lehman Brothers, small- and medium-size companies, such as eateries, have been bearing the brunt of the coronavirus pandemic.

    When combining instances where managers closed down their stores voluntarily, as the French restaurant owner did, the number of cases where businesses have been left unable to pay their debts and "perished" under the weight of the pandemic exceeds 500.

    The burden of fixed costs, including rent and rental equipment expenses, has played a big role in triggering such commercial failures and closures. One person in the industry commented in anguish, "Even if I borrow money from the bank, it disappears immediately due to rent payments," while another said, "Politicians aren't thinking at all about the situations of those working in the field. Tears have been welling up in my eyes out of rage."

    Data from Tokyo Shoko Research Ltd. shows that the 120 bankruptcy cases recorded in Tokyo -- far more than anywhere else in Japan -- account for a fourth of the total number of cases, which can be attributed to high rent in the capital.

    The Japanese government's economic relief measures repeatedly went astray during drafting and implementation, and were criticized as being "too little, too late." Although Abe initially announced confidently that the government would make payments that cover expenses, such as rent, for an average of six months, this proposal failed to take into account the scale of fixed costs.

    The government began full-scale discussions on its plan to help businesses pay rent in May, following criticism from the business owners. Although the cost was included in the second supplementary budget enacted in mid-June, the actual commencement date for the distribution of aid was Aug. 4, some two months after the budget's enactment.

    Lobbyists who approach politicians and government officials to influence policy measures behind closed doors also questioned the government's delay in providing support. A senior official at an energy company said, "(The government) has lost its sense of empathy to imagine what will happen next in society, or what kind of problems small- and mid-sized companies may be facing." A senior official at an organization of businesses commented, "The Ministry of Economy, Trade and Industry as well as the prime minister's office may have fallen into a state of dysfunction."

    Some economy ministry officials that led the planning of the series of policies have defended themselves by commenting, "We thought the Ministry of Land, Infrastructure, Transport and Tourism would be responsible for the issue of rent," and "Because we didn't think that we were in charge of aid for rent as we were busy dealing with subsidies to companies, preparations were delayed." The bureaucratic sectionalism of Japanese politics can be observed in such statements.

    The "Go To" subsidy program aimed at spurring domestic demand had also been delayed. Even though its launch was initially scheduled for July, the "Eat" section of the campaign to assist eateries has not yet begun as the government decided to start over its process of calling for eateries to register with the campaign, as the commission fee to the private sector calculated by the Ministry of Economy, Trade and Industry, which administers the overall "Go To" project, was criticized as being too costly.

    A senior official of the Ministry of Agriculture, Forestry and Fisheries, which is responsible for the "Eat" campaign said, "The campaign might have been launched more quickly had we not been so dependent on the economy ministry."

    Bankruptcies of businesses due to the coronavirus pandemic may increase even further going forward. Analysis by Teikoku Databank Ltd. indicates that among the 500 cases it recorded, many businesses had already been facing management issues, and the coronavirus was the final straw. The research company said that bankruptcies of even securely managed companies can also be feared in the near future, with the coronavirus being the main reason for them going out of business.

    The new Cabinet of Prime Minister Yoshihide Suga is considering an additional stimulus package in a third supplementary budget following two extra budgets enacted under the former Abe administration. Any further disarray may lead to the demise of Japan's economy.

    (Japanese original by Takashi Yamashita, Yuki Takahashi, and Atsuko Motohashi, Business News Department)

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