When 22-year-old Hinako Mori moved to Tokyo last year, she chose to work part-time at Don Quijote, a major discount retailer, for one main reason ¡ª it doesn¡¯t care what color her hair is.

Sporting ash blonde locks with light and dark blue streaks when interviewed, Mori likes to dye her hair different colors every six weeks.

It was very different when she worked at a major Japanese convenience store chain that mandated black or dark brown hair.

¡°One time, I dared to dye my hair blonde. But the next day, I was told to either wear a wig or use spray-on color,¡± said Mori. ¡°It was very stressful.¡±

Squeezed by Japan¡¯s tight labor market, more companies are this year following in the footsteps of Don Quijote, a Pan Pacific International group company. It relaxed its rules concerning hair and nail polish three years ago and says nearly a quarter of its employees now have brightly colored hair. When brown is included, 55% of its employees have hair that is not black.

Drugstore chain Fuji Yakuhin, for example, has done away with a plethora of rules for non-pharmacist employees. It now allows any hair color, nail art, heavy makeup, as well as all kinds of rings, whereas previously only wedding rings were permitted. Similarly, the operator of Tokyu Store supermarkets has dialed back restrictions on hair color, hair style, accessories, nail polish and piercings.

Japan Inc. has been gradually relaxing its dress codes over the past two decades. The catalyst was a 2005 Cool Biz campaign by the Environment Ministry that encouraged the ditching of jackets and ties to cut down on air conditioning costs during summer.

Since then, summer dress codes have become more casual, uniforms are no longer mandated for many department store employees and white gloves for taxi drivers were made optional.

The newest changes around hair color, nail polish and accessories are predominantly taking place at smaller companies facing more acute labor shortages than bigger firms and don¡¯t have as much leeway to offer competitive wages.

But some big listed firms have relaxed dress codes this year. Japan Airlines last week joined subway operator Tokyo Metro and domestic budget carrier Skymark Airlines in allowing staff to wear sneakers to work.

Japan, a rapidly aging country with limited immigration, has seen its working-age population tumble 16% since a peak in 1995, according to OECD data. That¡¯s set off fierce competition for staff.

Two-thirds of Japanese firms have said the labor shortage is having a serious business impact, a Reuters survey shows. It was the leading cause of Japanese bankruptcies in April-September, with the number of failures hitting their highest level in 12 years for...