TOKYO, Japan: Rising wage bills are beginning to bite for Japan's smaller companies, with bankruptcy filings climbing in January as firms struggled to cope with labour shortages and higher pay costs in a tight job market, a private survey showed on February 9.

Bankruptcy cases rose 5.6 percent in January from a year earlier to 887, the highest level for the month in 13 years, according to research firm Tokyo Shoko Research. The increase underscores the challenge facing policymakers as they push for higher wages to support household spending while trying to protect small businesses from being squeezed.

Of the total bankruptcies, 19 companies cited surging labour costs as a reason for their filing, a threefold increase from a year earlier. Another 36 pointed to labour shortages, marking the first rise in such cases in eight months, the survey showed.

"Many small firms cannot cope with rising costs and labour shortages. With demand for funds likely to increase towards the March fiscal year-end, bankruptcy cases are expected to rise moderately," Tokyo Shoko Research said in a report.

The findings come as separate government data showed Japan's real wages fell 0.1 percent in December from a year earlier, a sharp improvement from a 1.6 percent decline in November. The slowdown in wage erosion reflected easing inflation and steady gains in bonus payments.

Still, the data highlights the difficulty for the government as it seeks to engineer sustained wage growth to bolster household purchasing power without destabilising smaller firms already under strain.

Prime Minister Sanae Takaichi, who won a landslide victory in the general election on February 8, has pledged to help small businesses struggling to raise pay as part of broader efforts to boost wages across the economy.

Japan's core consumer inflation has exceeded the Bank of Japan's two percent target for nearly four years, driven in part by companies passing on higher raw material costs. Persistent inflation, combined with an intensifying labour shortage, has pushed firms to raise wages, though pay growth has yet to consistently outpace price increases.

Analysts expect inflation to moderate in the coming months due to base effects from last year's sharp rises and the rollout of fuel subsidies from February.

Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, expects real wages to turn positive on a year-on-year basis in January and remain so at least through March.

"But inflationary pressure from a weak yen is a risk. Firms could become more keen to hike prices again if the yen weakens, which would keep inflation elevated," he said. "If this happens, real wages could sink back to negative territory in April."

The outlook for real wages will be a key factor shaping the Bank of Japan's future policy moves after it raised interest rates to a 30-year high of 0.75 percent in December. Governor Kazuo Ueda has said the central bank needs confidence that underlying inflation can sustainably meet its two percent target before proceeding with further rate increases.