What To Know
- The latest figures from Tokyo Shoko Research showed that 45 companies collapsed between January and June after identifying the weak yen as a direct contributor to their financial failure, representing an increase of more than 30 per cent from a year earlier.
- This International Business News report highlights how what was once viewed primarily as a foreign exchange issue has rapidly evolved into a major challenge for Japan’s domestic economy, particularly for the small- and medium-sized enterprises that form the backbone of employment and regional business activity across the country.
International Business News: Japan’s prolonged currency slump is pushing an increasing number of small businesses to the brink, with weak-yen-related bankruptcies climbing to their highest first-half level since such cases began being tracked in 2022. As the yen hovers near its weakest level in four decades, import-dependent companies are grappling with soaring costs, shrinking profit margins and mounting financial pressure, exposing a widening divide between large exporters benefiting from the weaker currency and smaller firms struggling to survive.
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The latest figures from Tokyo Shoko Research showed that 45 companies collapsed between January and June after identifying the weak yen as a direct contributor to their financial failure, representing an increase of more than 30 per cent from a year earlier. This International Business News report highlights how what was once viewed primarily as a foreign exchange issue has rapidly evolved into a major challenge for Japan’s domestic economy, particularly for the small- and medium-sized enterprises that form the backbone of employment and regional business activity across the country.
Import Costs Continue to Climb
The Japanese currency recently slid to around 162.84 against the US dollar before trading near 162.50, its weakest level since 1986. The depreciation has largely been fueled by expectations that US interest rates will remain higher for longer, encouraging investors to favor dollar-denominated assets while keeping the interest-rate gap between Japan and the United States wide.
For Japan’s major exporters, including automotive manufacturers and large trading houses, the weaker yen has translated into stronger overseas earnings when converted back into local currency. However, the picture is dramatically different for smaller importers that rely heavily on overseas food products, fuel, raw materials and merchandise.
Many of these businesses have limited pricing power because of fierce competition and cautious consumer spending, making it extremely difficult to transfer higher import costs to customers. Instead, they have been forced to absorb much of the additional expense, steadily eroding already narrow profit margins.
Wholesale Firms Face the Greatest Pressure
According to Tokyo Shoko Research, wholesalers accounted for 23 of the 45 weak-yen-related bankruptcies recorded during the first six months of the year, representing more than half of all such failures. Retail businesses followed with nine bankruptcies, while manufacturers recorded five cases. Service companies and transport operators also reported several insolvencies linked to currency weakness.
Although the number of bankruptcies increased significantly, total liabilities fell by nearly 75 per cent to ¥22.67 billion, suggesting the latest failures were concentrated among smaller businesses rather than large corporate collapses. Researchers noted that last year’s liabilities had been inflated by a major paper company bankruptcy, whereas the latest wave has been dominated by micro and small enterprises.
Inflation Adds to Financial Burden
The weak currency has also intensified inflationary pressures across Japan by increasing the cost of imported energy and essential goods. Rising oil prices linked to tensions in the Middle East have further amplified the burden, driving up expenses throughout supply chains.
Surveys conducted among smaller businesses have shown sharp increases in the prices paid for raw materials and imported merchandise during the second quarter. At the same time, Japan’s producer price index has continued to trend higher, reflecting sustained cost pressures throughout the manufacturing and distribution sectors.
Businesses are also facing higher labor expenses as persistent worker shortages force employers to raise wages in an increasingly competitive job market. For many smaller firms, the combination of imported inflation, wage growth and elevated operating costs has become increasingly difficult to manage.
Business analysts said the weak yen has become one element of a much broader financial squeeze, combining with inflation and labor costs to create an accumulating burden on businesses.
Bank of Japan Faces Difficult Choices
The worsening situation is placing additional pressure on the Bank of Japan as policymakers weigh further interest-rate increases.
Higher borrowing costs would normally increase financial strain on businesses already facing tight cash flows. However, raising interest rates could also strengthen the yen by narrowing the interest-rate differential with the United States, potentially easing import costs over time.
The central bank therefore faces a delicate balancing act between supporting the currency and avoiding further hardship for smaller companies already struggling with rising costs, labor shortages and weakening profitability.
Currency Hedging Brings New Risks
Financial experts are also warning that some businesses could face another round of difficulties through complex foreign-exchange hedging products.
Many regional importers have used structured contracts known as reverse knockout options to reduce hedging costs. These arrangements provide protection only until the exchange rate reaches a predetermined level, after which the hedge expires automatically.
Should the yen weaken beyond those trigger points, companies would be forced to purchase US dollars at prevailing market rates or negotiate new hedging contracts at less favorable prices, leaving them exposed to even higher costs.
Market analysts estimate many remaining knockout thresholds are clustered between 163 and 170 yen against the dollar. If the currency weakens further into that range, more businesses could lose their protection, potentially creating another wave of financial stress for importers.
Some currency specialists also warn that importers rushing to purchase dollars after losing their hedges could generate additional demand for the US currency, placing even greater downward pressure on the yen and reinforcing the cycle.
Japan already recorded more than 10,300 corporate bankruptcies during 2025, the highest annual figure since 2013, reflecting the cumulative effects of higher raw material costs, labor shortages and persistent economic uncertainty.
The latest surge in weak-yen-related failures suggests those pressures are far from easing. Unless the currency stabilizes or operating costs moderate, many smaller businesses may continue facing severe financial challenges while larger export-oriented corporations remain comparatively resilient. The growing imbalance highlights the uneven consequences of Japan’s currency weakness and raises fresh concerns over the long-term health of the country’s small-business sector, which remains central to employment, regional economies and broader economic stability.
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