Japan bankruptcies climb as construction and small firms struggle

Adam German
Jul 14
4 min read

Corporate bankruptcies in Japan continued to increase during the first half of 2026 as rising costs, labor shortages and accumulated debt placed greater pressure on smaller businesses.

Tokyo Shoko Research recorded 5,346 bankruptcies between January and June, up 7.1 percent from the same period of 2025.

It was the fifth consecutive first-half increase and the first total above 5,000 since 2014.

Japanese workman on-site at a construction site.

Photo by Beth Macdonald on Unsplash

Combined liabilities increased 6.3 percent to approximately ¥734.1 billion.

Separate data from Teikoku Databank showed a similar trend. It recorded 5,335 bankruptcies, up 6.6 percent, with liabilities rising 6.9 percent to approximately ¥724.7 billion.

The two research companies use different databases and methodologies, but both found that business failures are continuing to rise.

Small businesses account for most failures

Around 77 percent of the bankruptcies recorded by Tokyo Shoko Research involved liabilities below ¥100 million.

Approximately 91 percent involved businesses with fewer than ten employees, while only one listed company entered bankruptcy proceedings.

Teikoku Databank similarly found that businesses with liabilities below ¥50 million accounted for 62.2 percent of its total.

The increase is therefore concentrated among small businesses with limited financial reserves and less ability to negotiate higher prices with customers.

Rising costs are becoming harder to absorb

Teikoku Databank recorded 556 bankruptcies related to rising prices during the first half, up 23.8 percent and the highest half-year total since its survey began in 2018.

Higher raw-material costs were associated with 255 cases, while increased labor costs contributed to 145. Energy expenses were connected to another 106 cases.

These categories can overlap, but they show how several types of expenditure are increasing simultaneously.

Smaller companies may be paying more for materials, transportation, energy and employees without being able to raise their own prices sufficiently.

Labor shortages are also becoming a direct financial risk.

Tokyo Shoko Research recorded 237 labor-shortage-related bankruptcies, up 37.7 percent. Within that total, 120 were connected to rising personnel costs, more than double the number recorded one year earlier.

For some businesses, the challenge is no longer simply finding workers. They must offer higher wages to recruit or retain employees while operating in markets where customers may resist higher prices.

Debt pressure has not disappeared

Bankruptcies among companies that used Japan’s effectively interest-free and unsecured pandemic loan programs declined during the first half.

However, some borrowers continue to delay repayments through loan rescheduling or refinancing because their profits remain insufficient to cover principal payments.

The combination is becoming increasingly difficult for weaker companies.

Operating costs are rising, wage increases are harder to avoid, and lenders may be less willing to continue extending repayment periods. Higher interest expenses can add further pressure when loans are refinanced.

Construction bankruptcies return above 1,000

The construction sector is particularly relevant to Japan’s real estate market.

Tokyo Shoko Research recorded 1,026 construction company bankruptcies during the first half, up 5.8 percent. The total exceeded 1,000 for the first time since the first half of 2014.

Teikoku Databank separately recorded 151 construction bankruptcies related specifically to rising prices, the highest total among the industries it examined.

Construction companies are facing higher prices for materials including steel, timber and concrete. Shortages of skilled workers, rising outsourcing expenses and an aging workforce are adding to the pressure.

Real estate company bankruptcies increased more modestly, rising 1.2 percent to 162 cases.

For property owners, developers and investors, the more immediate concern may therefore be the financial condition of contractors and specialist trades rather than real estate companies themselves.

Further contractor failures could reduce competition for projects and increase the risk of delays, incomplete work or disruption to maintenance relationships.

Succession problems are also closing businesses

Teikoku Databank recorded 312 bankruptcies related to difficulty finding a successor, up 16.9 percent and the highest first-half figure in its data.

In just over half of those cases, the owner’s illness or death was the main trigger.

These failures are not necessarily caused by weak customer demand. A viable local business can still disappear when its owner can no longer continue and no family member, employee or outside buyer is prepared to take control.

This is particularly important in regional property markets, where small contractors, maintenance providers and specialist trades may possess knowledge and relationships that are difficult to replace.

An elevated trend rather than a systemic crisis

Japan’s bankruptcy figures are rising but remain below the levels recorded around the global financial crisis.

Teikoku Databank recorded 7,023 bankruptcies during the first half of 2009, compared with 5,335 during the same period of 2026.

The current increase should therefore not automatically be interpreted as a system-wide corporate crisis.

Instead, it reflects a gradual deterioration among businesses already operating with narrow margins, limited pricing power, aging owners or heavy debt burdens.

More than 80 percent of the bankruptcies recorded by Teikoku Databank were primarily attributed to weak sales. Traditional business weakness is now being compounded by inflation, labor constraints and financing pressure.

For Japan’s real estate market, the trend does not necessarily point to an immediate decline in property demand or prices.

It does, however, increase the importance of financial due diligence on contractors, commercial tenants, property operators and other smaller businesses connected to an investment.