The yen's policy-fueled decline since Shinzo Abe took office at the end of 2012 benefited blue-chip exporters, but expectations that the Prime Minister's policies would trickle down have fallen short, with a record number of small businesses declaring yen-related bankruptcies in 2014.
"There are no signs that the benefits of Abenomics are trickling down to small and medium-sized businesses (SMEs)," said Osamu Naito, a bankruptcy analyst at credit research firm Teikoku Databank. "If anything, the yen's latest weakening is the last straw for many struggling small and medium-sized businesses."
In 2013, Shinzo Abe launched a package of fiscal and policy stimulus measures and structural reforms, dubbed Abenomics, aimed at kick starting Japan's long moribund economy. The has since depreciated around 40 percent against the U.S.dollar, with the dollar touching a seven-year high above 121 yen in early December. Currently, the pair is trading around 119.66.
Yen weakness hit SMEs in 2014, with 345 citing it as the cause of bankruptcy, more than double that of 2013, while the number of employees who lost their jobs nearly doubled to 5,270, according to Teikoku's figures. SMEs employ around 70 percent of Japanese workers.
Greater of two evils
The yen has swung widely since 2007, trading between 100 and 123 per dollar, before strengthening after the collapse of Lehman Brothers in September 2008 and peaking at 75.825 in October 2011.
Yen strength became a concern starting in 2008, pushing some SMEs into bankruptcy,but at a much slower pace than current yen weakness. Between 2008 and 2011, just 85 companies cited yen strength as the cause of bankruptcy, according to Teikoku figures.
By comparison, the latest bout of yen weakness, which saw the currency weaken 18 percent since late August, has increased yen-related bankruptcies every month since September, with a record high 44 cases in December alone.
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Transportation companies have been the hardest hit, accounting for nearly 35 percent of bankruptcies in 2014 due to higher imported fuel costs.
"Importers are more vulnerable to currency swings, particularly the weaker yen," said Naito.
Meanwhile,the , which includes many of Japan's leading blue-chip exporters whose profits have soared on the weaker yen, has surged more than 60 percent over the past two years.
More pain ahead?
With many analysts predicting a further yen weakness, more SMEs could go out of business, according to Naito.
"It typically takes several months before small business owners run out of funds to cover higher costs and hit the end of the road," he said.
But others disagree.
"It's misleading to focus on the rising numbers of bankruptcies caused by the weaker yen when, overall, the number of companies going out of business has been falling," said Masahiko Hashimoto, economist at Daiwa Institute of Research.
Total bankruptcies were down 18.2 percent on-year at 671 in November, the lowest level since September 2006, latest figures from Teikoku Databank show.
The future remains uncertain, however. Abe's government is set to downgrade its fiscal 2015 growth forecast to a contraction – its first in five years –according to local media reports. In July, the government forecast growth of 1.2 percent.
Abe's administration anticipates economic growth of 1.5 percent for fiscal 2016. The Cabinet will approve the revision on January 12, according to a Kyodo newswire report.