TOKYO - Corporate bankruptcies caused by labor shortages in Japan reached a record 240 cases in the first half of the current fiscal year, highlighting the growing financial strain on small businesses as Prime Minister Sanae Takaichi pledges to protect household livelihoods through economic growth while pursuing consumption tax cuts that could place additional pressure on the restaurant industry.
According to Tokyo Shoko Research, more than half of the 240 bankruptcies during the six months through September were attributed to rising personnel costs, underscoring the difficulties businesses face in securing workers while maintaining profitability.
The pressures are particularly acute in the restaurant industry, where operators are struggling to recruit part-time employees despite offering higher wages. Some establishments have been forced to turn away customers because they lack sufficient staff to handle demand, resulting in lost sales opportunities even when customer interest remains strong.
At one restaurant operated by an owner-chef and two or three part-time workers, the owner said recruitment had become increasingly difficult, with job advertisements frequently attracting no applicants. When employees are unavailable, the owner has little choice but to handle the additional workload personally.
"I just have to work harder," the owner said, explaining that there are occasions when customers must be turned away because the restaurant cannot accommodate them.
The shortage of workers is creating a particularly difficult environment for businesses in Kawaguchi, Saitama Prefecture, which borders Tokyo. The minimum wage in Tokyo is 84 yen higher than in neighboring Saitama, encouraging workers to seek employment across the prefectural boundary.
Restaurants in Kawaguchi face the challenge of offering wages competitive with those in Tokyo while operating in a market where raising menu prices to the same extent may be difficult.
One restaurant operator said matching Tokyo's higher wage levels was not necessarily impossible, but extending such increases to every employee would substantially raise the business's overall payroll.
The operator warned that unless revenue and customer numbers increased accordingly, the additional costs would become extremely difficult to absorb.
"It has become much harder than before to retain any money after expenses," the operator said.
The difficulties illustrate a broader structural problem confronting Japan's small and medium-sized enterprises. Higher wages are increasingly necessary to attract and retain employees, but businesses without sufficient pricing power or productivity improvements may struggle to generate the additional revenue needed to finance those increases.
For restaurants operating on relatively narrow margins, the combination of rising payroll expenses, limited staffing and intense competition presents an increasingly difficult balancing act.
Adding to concerns is the government's proposed reduction in the consumption tax on food, which could widen the price difference between meals prepared at home and those served in restaurants.
Under the proposed legislation, the consumption tax on food products would be reduced to 1% for two years beginning in April 2027, while the tax rate on restaurant dining would remain at 10%.
Industry representatives fear the widening tax differential could encourage consumers to buy groceries and prepare meals at home rather than eat out, potentially reducing restaurant sales at a time when operators are already struggling with rising labor costs.
The issue has become a focus of parliamentary debate, with opposition lawmakers pressing the government to explain how it intends to protect restaurants from the consequences of the proposed tax reduction.
During questioning in an extraordinary Diet session, an opposition lawmaker criticized the government's approach of determining the scope of assistance only after assessing which businesses would be affected.
The lawmaker questioned whether the government would accept responsibility if restaurant bankruptcies increased following the tax reduction.
Takaichi responded that the government would carefully examine the circumstances facing businesses and develop appropriate assistance measures.
"It is important to provide carefully targeted support while confirming the actual circumstances of businesses," Takaichi said, adding that the government would specify the details of support during the budget formulation process without postponing assistance to the restaurant sector.
However, the specific measures have yet to be finalized, leaving businesses uncertain about the level of financial support they can expect.
Questions have also been raised over whether additional assistance will be provided to small businesses struggling to finance wage increases.
An opposition lawmaker asked whether the government intended to introduce further measures for small and medium-sized enterprises before the end of the year, citing concerns that many companies lack the financial resources needed to raise wages sufficiently to secure workers.
Takaichi acknowledged that the business environment remained difficult for small and medium-sized enterprises and smaller operators.
She said the government would work to create conditions that enable businesses to raise wages, including support for labor-saving investments such as self-checkout systems.
Such investments are intended to reduce dependence on employees and improve productivity, allowing businesses to sustain operations with fewer workers while potentially freeing resources for higher wages.
However, Takaichi did not directly answer whether additional measures would be introduced before the end of the year.
The consumption tax proposal also raises substantial questions about government finances. The two-year reduction is estimated to require approximately 10 trillion yen in funding, but the government has not yet identified how the full cost will be covered.
Takaichi told lawmakers that funding arrangements would be considered in conjunction with broader reforms to the budget formulation process.
In addition to restaurant operators, agricultural, forestry and fisheries businesses are expected to receive financial assistance to offset what could amount to an increased effective tax burden under the revised system.
Although the government has decided to provide support for these sectors, the amounts, eligibility requirements and payment arrangements remain undetermined.
The absence of detailed funding and compensation plans has added to uncertainty surrounding one of the administration's central economic initiatives.
In her policy speech, Takaichi identified protecting people's livelihoods through the strength of the economy as her highest priority, emphasizing sustainable economic growth as the foundation of the government's approach.
The focus represents an increased emphasis on household living standards as the administration responds to public concerns about rising costs and the financial pressures facing both consumers and businesses.
The government has promoted a stronger economy as a means of improving living conditions, but its immediate challenge is demonstrating how that objective can translate into tangible relief for households and smaller enterprises.
Economists and policy specialists have questioned how much benefit the food consumption tax reduction will ultimately deliver to households, particularly when its substantial fiscal cost and potential consequences for restaurants are taken into account.
The unresolved funding arrangements have also raised questions about the sustainability of the proposed tax changes and their implications for Japan's public finances.
Beyond domestic economic policy, concerns have emerged about the administration's engagement in international economic discussions, particularly those involving energy security.
At a recent emergency online summit involving Group of Seven countries, Japan was represented by a senior official serving as a sherpa rather than by the prime minister.
The discussions focused on energy issues with significant implications for Japan, which remains highly dependent on imported energy resources.
The level of Japan's participation prompted concerns that representation by an administrative official could limit the country's ability to influence discussions at the highest political level.
The administration now faces the challenge of balancing domestic economic relief, support for vulnerable businesses, fiscal sustainability and international economic engagement.
For restaurants and other labor-intensive businesses, however, the immediate concern remains whether government policies can address the mounting costs of keeping employees while preserving sufficient income to remain in operation.
With labor shortage-related bankruptcies already at record levels, the effectiveness of the government's promised assistance and the unresolved details of the consumption tax reduction are likely to face increasing scrutiny as budget discussions proceed.
Source: TBS
