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Japan's Small-Cap Companies Pressured by Rising Commodity Costs

Japan is suffering a wave of small- company bankruptcies in industries as diverse as poultry farming and die-casting because they can't pass on rising raw-material costs to customers.

The number of companies filing for bankruptcy protection rose 18 percent to 11,333 in the year ended March 31, Teikoku Databank Ltd., Japan's biggest corporate-credit researcher, said in its annual report. Failures of firms with less than 100 million yen ($1 million) of debt gained 21 percent.

Companies with less than $10 million of capital, which employ 70 percent of Japan's workforce, are squeezed between record commodity prices, cost-cutting pressure from large customers and belt-tightening by consumers. Small manufacturers turned pessimistic for the first time in four years in the Bank of Japan's March survey of business sentiment.

``Conditions for small business, already squeezed by energy and materials costs, will probably remain harsh,'' Yasuhiro Onakado, a Tokyo-based economist at Daiwa SB Investments Ltd., said in a telephone interview yesterday.

About 60 percent of company failures in the past year involved small firms with less than 100 million yen in liabilities, according to Teikoku Databank.

``Higher energy and commodity costs are the chief reason for the increase,'' Tatsuro Kato, a Teikoku analyst, said in an interview yesterday.

Die-caster Fujimi, based in Saitama, near Tokyo, filed for bankruptcy protection last November with 8.6 billion yen in debt. Fujimi ran out of cash after expanding output, while remaining unable to pass on to customers price increases in the aluminum used for dies, according to Makoto Tahira, the lawyer who began the company's bankruptcy proceedings.

Fujimi's problems are common to many die-casters, which depend on the auto industry for 80 percent of their business. ``There are cases where for every extra order, makers get requests for further discounts,'' according to Takeya Maekawa, an executive at the Japan Die-Casting Association.

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