Small businesses fear failure as Japan slow-walks stimulus

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TOKYO (Reuters) — For shell-shocked small businesses in Japan, a targeted stimulus of $1.1 trillion is proving too little, too late, increasing the risk of a spike in bankruptcy in firms employing nearly three-quarters of the workforce.

Last month, Prime Minister Shinzo Abe’s government declared a state of emergency in response to the coronavirus crisis. It rolled out a package equivalent to 20 percent of economic production, including loans to small businesses.

But seven business owners expressed extreme disappointment to Reuters about a process they said took too long and didn’t produce enough. Abe, under fire for his crisis handling, said the government would take further stimulus measures.

Small businesses fear failure as Japan slow-walks stimulus

But small businesses, employing 70 percent of the workforce, are on the brink of disaster already. According to research firm Tokyo Shoko Research, the outbreak has pushed more than 140 companies into bankruptcy since February, with more anticipated towards the end of the month.

Yuji Hara, 63, the president of Tokyo’s Kaze Travel Agency, says his employees were the biggest concern. He has demanded government help for his staff, paying 8,330 yen ($78) a day to the employees. But the money has not yet arrived, and he borrowed to pay wages from a State-backed lender.

With no income in April and probably none for the next few months, he is uncertain when he will be able to repay it. Liquidating the business would be the most decent decision, but he has 30 employees to support.

As of Wednesday, 16,724 companies had sought such aid, and 6,571 cases had been approved.

In the worst-case scenario, nearly 40 percent of Japan’s 1.5 million businesses will go bankrupt if profits continue to fall by 50 percent for 11 months without bank loans or government intervention. It predicts research firm Teikoku Data Bank.

While that scenario seems unlikely, it does illustrate how critical the aid from the government in Japan is for small businesses.

They know the current situation is not the best, as a labor ministry official admitted in charge of some assistance. They are considering measures to provide the money more quickly. The official wasn’t allowed to talk to the media and spoke anonymously. The official added that financial resources for the payments were limited.

Japan is due to lift most of the country’s state of emergency on Thursday, although Tokyo – the heart of the economy – will remain under restrictions.


The Shinjuku ward office lobby in Tokyo was packed on a weekday in April. People lined up to apply for interest relief on new loans – a strong contrast to the government’s appeal for social distancing.

Applicants must make an appointment for an initial meeting to get subsidies and then another appointment for a guarantee letter. They need to get a bank appointment after that to discuss the terms.

Among those waiting in a line last month was Nobukazu Aoki, the 69-year-old owner of an izakaya restaurant. He said sales had declined by 90%.

He told Reuters, weeks later, that he had yet to get a loan and isn’t counting on that money any longer.

At lunchtime, he leaves his place open, so his seven part-time employees can earn some money. He checks every customer’s temperature before he lets them in.

Unless the government compensates for what businesses have lost, Taro Saito, a research executive at Zero Research Center, believes there will be a big wave of bankruptcies and unemployment.

In March, Japan’s unemployment rate was 2.5 percent, which could increase to 4 percent if the downturn continues, Saito said.


Unlike some other countries like France, Japan has yet to offer to help small businesses make rent payments. He’d think about such a measure, Abe has said.

For Akihiro Yoshida, 33, who runs a hair salon in Tokyo’s luxurious Aoyama district that employs four workers, rent eats up a quarter of monthly revenue.

If this situation continues, he might have to move to a cheaper location, he said. But the current location means a lot for him in terms of developing his business.

Many companies, including restaurants and karaoke parlors, have been funded by the Tokyo Metropolitan Government. But limited sums went towards hair salons.

Kei Kubo, 48, who owns two salons in Daikanyama, applied in early April. He could only talk to a bank about a state-backed loan a month after.

The government looks unwilling to help them out, Kubo thinks. He doesn’t see any urgency in them.

Hajime Yoneda, 47, is the owner and chef for Hajime, a three-star Michelin (PA: MICP) restaurant in Osaka. He has gathered signatures for a petition urging the government to help rent raise the payouts for jobs.

Final thoughts

Typically restaurants can survive without sufficient cash only for three months. The money should be delivered as soon as possible before more of them go bankrupt, Yoneda said.