Financing SMEs and Entrepreneurs 2026: Japan
Table of contents
The Japanese economy showed positive signs in spring 2024 with nominal GDP exceeding JPY 600 trillion on an annualized basis for the first time, and capital investment reaching a 33-year record high. A virtuous cycle of wages and prices is being realized, as seen in the labour-management wage negotiations in spring 2024, which lead to a high wage increased for the first time in 33 years, contributing to household demand. However, although the corporate sector has remained firm, wage and income growth has not been able to consistently exceed inflation, and personal consumption continues to be weak. For this reason, Japanese economy is currently at a crossroads (Cabinet Office, 2025[1]).
Lending to SMEs declined continuously between 2007 and 2012. In 2013, the volume of outstanding SME loans shifted upward and has increased consistently since then to reach JPY 356.2 trillion in 2024.
Average interest rates on new short-term loans in Japan have been very low and further declined between 2007 and 2023, falling from 1.64% to nearly a quarter of that amount (0.42%) following monetary easing. However, in 2024, after the monetary policy meeting in March 2024, the rates increased to 0.51 % in 2024. Long-term interest rates on new loans followed a broadly similar pattern, more than halving from 1.73% in 2007 to 0.78% in 2022. In 2024, the rates slightly increased to 1.07%.
Since 2015, VC investments have been rising rapidly, with the exception of for a sharp drop amid the disruption of the COVID-19 pandemic in 2020 and reached their highest value of JPY 341 billion in FY2021. However, they declined to JPY 293 billion in FY2024,
In regard to leasing, after an upward trend in 2019 pre-COVID, the volumes decreased to JPY 2.1 trillion in 2021. More recently volumes have risen to reach JPY 2.7 trillion in 2024.
SME bankruptcies, which account for more than 99% of all bankruptcies in Japan, decreased from 15,500 in 2008 to 6000 in 2021. With COVID-19 financing support measures, the number of SME bankruptcies was curbed at lowest level over the last 57 years. However, since then, the number of SME bankruptcies has started to increase, and the number of SME bankruptcies reached 10,004 in 2024.
Total non-performing business loans (NPLs) have declined continuously since FY2013, after having experienced erratic movement over the FY2007-12 period. In FY2024, total NPLs amounted to JPY 13.5 trillion.
Real GDP growth has moderately recovered with a pickup in domestic demand, such as consumer spending and capital investment since 2022, although the service sector suffered a delayed recovery. Although there was a recovery trend from the economic shock caused by COVID-19 in FY2023, the situation continued to fluctuate as wage growth could not keep up with price increases. The real GDP growth rate for FY2023 was 0.6% (Cabinet Office, 2025[1]). In FY2024, real GDP growth was positive from the first quarter to the third quarter compared to the previous quarter and in the fourth quarter (January-March 2025), the rate by 0% q-o-q. As a result, in a real GDP growth rate of 0.8% in FY2024 (Cabinet Office, 2025[2]).
In Japan, the Government and the Bank of Japan (BOJ) strengthened their policy co-ordination in 2013 with the aim of overcoming deflation as early as possible and achieving sustainable economic growth. The BOJ has continued large-scale monetary easing for the past decade, with a 2% price stability target. While many countries have tightened monetary policy by raising policy interest rates to curb inflation since the first quarter of 2022, the BOJ implemented its monetary easing measures that maintained low-interest rates (short-term at -0.1% and long-term at around 0%) through Yield Curve Control. However, at the Monetary Policy Meeting in March 2024, the BOJ decided to raise interest rates for the first time in 17 years (Bank of Japan, 2024[3]). At the Monetary Policy Meeting in December 2025, the policy rate was raised to about 0.75%. This brought the policy rate to its highest level in about 30 years. The BOJ considered that the mechanism for both wages and prices to rise moderately is likely to be maintained, and that the central forecast of the underlying inflation rate remaining at a level roughly consistent with the price stability target of 2% is increasing (Bank of Japan (2025)[1]. As for the conduct of monetary policy, given that real interest rates are at significantly low levels, in accordance with improvement in economic activity and prices, the BOJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation.
SMEs accounted for 99.7% of all Japanese businesses and employed 33 million individuals, or approximately 69.7% of the private sector labour force in 2021.
Sales of SMEs have been on an upward trend since bottoming out in the first quarter of 2021. Although the pace of increase has recently slowed, the upward trend continues, reaching 137.5 trillion yen in the fourth quarter of 2024 (four-quarter trailing moving average). Ordinary profits have also been on an upward trend since bottoming out in the third quarter of 2020. In the fourth quarter of 2024, ordinary profits stood at 6.5 trillion yen (four-quarter trailing moving average). However, the growth has been modest and has lagged that of large enterprises, with the gap continuing to widen.
Note:
1. Number of enterprises = Number of companies + Business establishments of sole proprietors (independent establishments and head offices). 2. “Micro enterprises” refers to “micro enterprises” as defined under the Small and Medium-sized Enterprises Basic Act. “Medium-sized enterprises” refers to SMEs other than micro enterprises.
Source: Ministry of Internal Affairs and Communications and Ministry of Economic, Trade and Industry, 2021 Economic Census for Business Activity
The share of SME outstanding loans dropped from 72.8% in 2007 to a low of 67.5% in 2019. Since 2019, the share of SME outstanding loans over the total outstanding loans has increased amid the COVID-19 crisis and was approximately 68.6% in 2024. Comparing pre-pandemic levels to the most recent data, the outstanding SME stock grew 24% from 2019 to 2024, from JPY 286.6 to JPY 356.2 trillion.
SME survey data imply the easing of collateral requirements between 2018 and 2021. Of SMEs that receive loans from their main bank, 29.4% provided physical collateral in FY2018. This rate steadily decreased since then , resulting in 23.8% in FY2023.
Average interest rates on new short-term loans in Japan has remained at a very low level, even by historical standards, and have declined every year for more than the past decade, decreasing from 1.64% in 2007 to a third of that amount (0.51%) in 2024. Long-term interest rates on new loans followed a broadly similar pattern, more than halving from 1.73% in 2007 to 1.07% in 2024.
As of 2024, corporate financing costs remain at extremely low levels. Lending rates (average new interest rates) have increased slightly for long-term loans but have remained at extremely low levels for short-term loans.
Japanese venture capital investment has expanded significantly over the past decade, peaking at JPY 341 billion in 2021. While investment declined modestly thereafter, it totalled JPY 293 billion in 2024, suggesting sustained momentum despite a more challenging global funding environment.
Seed and early-stage investments have become increasingly important to SME financing in the venture capital sphere. In 2010, seed and early-stage investments accounted for 32.5% of total venture capital investments. This share increased drastically and in 2024 reached 72.9% of venture capital investments. Expansion and later stage investments accounted for 27.1% in 2024.
Since 2013, SME leasing has been erratic but relatively stable with no big shifts in leasing volumes. In 2024, leasing volumes to SMEs were approximately JPY 2.7 trillion, meaning T volumes have remained well below the pre-GFC peak of JPY 3.5 trillion in 2007.
SME bankruptcies, which account for more than 99% of all bankruptcies in Japan, remarkably decreased since 2008 and stood at 6027 in 2021, the lowest level over the last 57 years, before a slight increase with 6425 cases in 2022. COVID-19-related loans by public and private financial institutions helped SMEs to survive in the markets; however,The number of bankruptcies increased to 8,685 cases in 2023 and 10,004 cases in 2024. This was the first time in 11 years that the figure exceeded 10,000. In 2024, the yen remained weak with continued volatility, and rising prices showed no signs of slowing. Labor costs also increased due to labor shortages and higher minimum wages, leading to cost pressures across a wide range of sectors. In addition, the resolution of excessive debt accumulated through COVID-19-related financing support was delayed, placing a burden on corporate earnings.
Total non-performing business loans have been on a downward trend since FY2013, after having experienced erratic movement at around JPY 17.0 trillion over the FY2007-12 period. NPLs, however, started to increase from FY2020, resulting in 13.5 trillion as of 2024.
The Japanese Government offers appropriate financial support to meet SMEs’ financing needs in the form of credit guarantees and direct loans. During the COVID-19 pandemic, the government implemented measures such as interest-free loans without requiring collateral to ensure that SMEs did not face severe financial difficulties.
Currently, the COVID-19-specific funding support measures have ended, and the government has introduced financial assistance programs to address rising material costs due to the situation in Ukraine and other factors. For instance, the Japan Finance Corporation, a government-affiliated financial institution, offers interest rate reductions on Safety Net Loans. Additionally, from the perspective of credit guarantees, SMEs affected by rising raw material prices and labour shortages can apply for the N0.5 Safety Net Guarantee if they meet certain revenue criteria. Furthermore, the "Cooperative Support Special Guarantee" was established in March of this year to enhance the financial intermediation function through collaboration between credit guarantee associations and regional financial institutions, aiming to resolve management challenges SMEs face.
Moreover, as part of its support for the revitalization of SMEs, the government is actively engaged in management improvement and recovery support through the "Small and Medium Enterprise Vitalization Support Center". In addition, efforts regarding the reform of personal guarantees by business owners are being steadily advanced based on the " Management Guarantee Reform Programme" published in 2022.
Source: See Table 1
References
Bank of Japan (2024)[1], “Changes in the Monetary policy Framework”
https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2024/k240319a.pdf
Bank of Japan (2025)[1], “Changes in the Monetary policy Framework”
https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2025/k251219a.pdf
Bank of Japan (2025)[2], “Outook for Economic Activity and Price”
https://www.boj.or.jp/en/mopo/outlook/gor2504b.pdf
Cabinet Office (2025)[1], “Japanese economic report”
https://www5.cao.go.jp/keizai3/2024/0212nk/keizai2024pdf.html
Cabinet Office (2025)[2], “SNA (National Accounts of Japan)”
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