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Election endorsement of Prime Minister Shinzo Abe’s policies are likely to trigger continued increase in bankruptcies among smaller firms.Natacha Pisarenko/The Associated Press

Japanese Prime Minister Shinzo Abe's victory in elections this month, an endorsement of his economic policies, may help the nation's biggest companies get richer while extending a surge in bankruptcies among smaller ones.

Toyota Motor Corp. and Honda Motor Co. are expected to post record profit this year after the policies known as Abenomics weakened the yen, boosting their earnings from overseas. Aggregate net income at 196 of the largest listed companies will rise to a record ¥18-trillion ($175-billion Canadian) this fiscal year, based on analyst estimates compiled by Bloomberg.

At the same time, the number of Japanese companies citing the weaker yen among the reasons for going bankrupt has almost tripled this year as surging costs of imported food, metals and construction materials squeeze small businesses, according to Teikoku Databank Ltd. Japan may see a continued rise in such bankruptcies, especially of small companies outside large cities, the research company estimated.

"There's a huge gap between the big exporting companies and smaller companies," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Abenomics is designed to create a strong economic structure in which the strong survive and the weak go away."

Small and mid-size businesses account for about 32 million jobs in Japan, more than double the 14 million offered by big companies, which mostly gain from currency depreciation, according to a 2014 report by the Ministry of Economy, Trade and Industry.

When Abe took office in 2012, Uchida Co., which supplies moulds to auto makers, bet on growth by building a new factory. Two years later, the company isn't profitable. Indeed, Abenomics may yet put the company out of business, said Takumi Tanaka, Uchida's senior managing officer.

The yen's 28 per cent plunge versus the dollar under Abe has pushed up costs for imported materials, while a sales tax increase and a 16-month decline in real wages have stymied domestic demand at Uchida's customers, including Honda. Japan's economy is in its fourth recession since 2008, even as the weaker yen spurred a record stock rally.

"We expected that Abenomics would help both big companies and smaller suppliers like us, so we invested ¥800-million to build a new factory," Tanaka said in an interview. "We dug a deep pit of risk, and now we keep waiting in the hole for the economy to get better."

The yen broke through 120 versus the U.S. dollar on Dec. 4 for the first time since 2007, as Abe's hand-picked central bank chief pumped a record amount of cash into the economy to stoke inflation. While some small firms struggle to pass on higher costs of imported materials to customers, large exporters are reporting higher profit and the total number of corporate failures is in decline.

Even as domestic auto industry sales declined in seven of the eight months since Japan's sales tax was raised on April 1, Honda, Uchida's biggest customer, will probably report record net income of ¥609-billion this fiscal year, according to the average of 23 analyst estimates. Toyota forecasts annual profit of ¥2-trillion, also a record.

Abe secured a pledge this week from companies to spread the wealth generated by the weaker yen by boosting wages. Data from the Bank of Japan show the companies are hoarding record amounts of cash and also investing heavily overseas. "I want companies with high profits that are benefiting from the weak yen to raise wages, investment, and on top of that, consider the prices they pay their suppliers," Abe said at a meeting of business and labour leaders on Dec. 16.

Japan's recession, deepened by companies' reluctance to plow gains from the weak yen back into domestic investments and consumers' hesitance to spend, prompted Abe to call an election, betting he'd emerge with firmer support for his economic agenda.

The administration has said it will address concern about companies hurt by a weak yen in a stimulus package that may be compiled this month.

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