Original title: (Effects of Japan's Interest Rate Hike) Zombie Companies Face Collapse: This Year, Bankruptcies Exceed 5,000, Liabilities Reach 1.38 Trillion Yen

Original author: Editor Jr., BlockTempo


Against the backdrop of major global economies like the United States, Europe, and China implementing monetary easing policies, the Bank of Japan has gone against the tide, not only ending the negative interest rate era in March of this year, which had been in place since 2007, but also announcing another interest rate hike at the end of July, causing many arbitrage traders to close their positions and a significant market downturn.


At the end of this month, from the 30th to the 31st, the Bank of Japan will once again hold a two-day monetary policy meeting, and the market is highly attentive to whether Japan will choose to raise interest rates.


Reuters: The likelihood of a rate hike in Japan in October is low.


In this context, a report by Reuters on October 21 pointed out that the Bank of Japan may not rush to raise interest rates again at this month's monetary policy meeting, with specific reasons including:


Bank of Japan Governor Kazuo Ueda has previously stated that time is needed to assess the risks of raising interest rates, such as the uncertainties in the U.S. economy.


The Japanese House of Representatives will hold elections on October 27, and the United States will also hold a highly anticipated election on November 5, which will lead the Bank of Japan to adopt a more cautious stance against the backdrop of such significant events.


If global economic growth slows or household and business confidence is insufficient, it may also lead the Bank of Japan to choose not to raise interest rates temporarily.


If the yen fails to continue depreciating, the cost pressure of imported goods in Japan will ease, and the lives and prices for the public will not be significantly affected, the central bank may also refrain from raising interest rates.


Most experts also believe that Japan will not raise interest rates again this year, and if there is a rate hike, it will not be until late 2025 or early 2026.


However, it is worth noting that while many factors currently suggest that the Bank of Japan will not raise interest rates this month, the Bank has indicated that if economic and price trends align with their expectations, raising interest rates will be inevitable, as Bank Governor Kazuo Ueda has previously expressed a determination to advance monetary policy normalization.


Interest rate hikes in Japan may trigger a wave of corporate bankruptcies.


Another change observed in the market is that Japan's long-term monetary easing policy has allowed many companies to rely on low interest rates and government support for survival but has not facilitated effective investment and hiring, leading to the proliferation of zombie companies in Japan.


Since the end of the negative interest rate era in March of this year, a report released earlier this month by Tokyo Shoko Research shows that the number of bankruptcies among Japanese companies from April to September has exceeded 5,000 for the first time in nearly a decade, with liabilities amounting to 1.38 trillion yen, approximately 9.2 billion dollars.


According to a research report by Lyon Securities, for every 0.1% increase in the benchmark interest rate, the number of these zombie companies, which allocate most of their profits to debt repayment, could increase from about 565,000 to 632,000.


It is worth mentioning that the bankruptcy of these zombie companies may not be a bad thing for Japan, as their existence makes it difficult for new companies to find good growth environments, and labor mobility is also insufficient. In this regard, Nicholas Smith, a strategist at Lyon Securities, commented:


We are not worried about Japan's unemployment issue; rather, we are most concerned about Japan's labor shortage problem.


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