Smaller businesses and sole proprietorships, whose owners take out personal loans to finance their businesses, could also be badly hurt, further depressing an already weak economy.
The new regulations, which include limiting the amount individuals can borrow to a third of annual income, kicked in on Friday.
Research firm Teikoku Databank warns that the tighter lending environment would make financing difficult for small businesses which are already facing record bankruptcy rates.
Ahead of a full implementation of the regulations on Friday, the bigger consumer lenders -- Acom Co, Promise Co, Takefuji Corp and Aiful Corp -- had tightened lending limits and reduced total loans by 40 percent in the last five years to 3.9 trillion yen by March this year.
The move put many Japanese consumers in a financial bind and helped to raise small companies' bankruptcies to 5,739 cases in 2009, or a record-high 50.7 percent of total corporate failure in the country.
Japan's economy grew 1.2 percent in January-March, outpacing growth in the United States and Europe, thanks to brisk exports to fast-growing Asian economies and government stimulus spending.
But analysts say growth is likely to slow later this year as gains in consumer spending, which accounts for about 60 percent of Japan's GDP, could moderate due to a lacklustre jobs market, while the impact of government stimulus spending is also expected to wear off.
Many shoppers are set to tighten their belts as about 9.6 million, or 42 percent of total borrowers that use consumer lenders, are already at or above their lending limit and unable to seek new loans, according to the Financial Services Agency.
Of those turned down by consumer lenders in the past 12 months, about 45 percent responding to a survey by the Japan Financial Services Association said they had given up loan financing and cut their spending to zero.
"People would likely to stop spending on luxury products. Leisure and service providers such as pachinko business might get hit and some may also stop sending their children to private schools," Promise's president Ken Kubo told Reuters this week.
Negative signs are already seen in Japan's pachinko and other gambling businesses where, according to the FSA report, consumer loan users often spend their money.
An executive from a major pachinko hall operator said the company had an internal meeting in January to brace for a possible negative impact from the new regulations. Their calculations showed that the lending squeeze may weigh on pachinko sales by about 10 percent, he said.
Waseda University professor Tomoaki Sakano expects the regulations, originally aimed to restrict loansharks and multiple borrowings by consumers, could weigh on Japan's GDP by 0.395 percent or 2.29 trillion yen if consumer lenders halve their loans amount.
http://in.reuters.com/article/idINIndia-49426720100618
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