Original Title: "The Collapse of Zombie Companies Due to the 'Effect of Japan's Interest Rate Hike': Over 5,000 Bankruptcies This Year, with Liabilities Reaching 1.38 Trillion Yen"
Original Author: Editor Jr., BlockTempo
Against the backdrop of major global economies, including the United States, Europe, and China, implementing monetary easing policies, the Bank of Japan has gone against the tide. Not only did it end the negative interest rate era that began in 2007 this March, but it also announced another interest rate hike at the end of July, leading to a significant market downturn as many arbitrage traders closed their positions.
At the end of this month, from the 30th to the 31st, the Bank of Japan will hold a two-day monetary policy meeting, which the market is closely watching. Will Japan choose to raise interest rates again?
Reuters: Low Probability of Japan Raising Interest Rates in October
In this context, a report by Reuters on October 21 indicated that the Bank of Japan may not be in a hurry to raise interest rates again at this month's monetary policy meeting for several reasons:
Bank of Japan Governor Kazuo Ueda previously stated that more 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 U.S. will have a highly anticipated election on November 5, which may lead the Bank of Japan to adopt a more cautious stance in light of these significant events.
If global economic growth slows down, or if household and business confidence is insufficient, the Bank of Japan may also choose to refrain from raising interest rates temporarily.
If the yen does not continue to depreciate, leading to reduced cost pressures on imported goods and minimal impact on the public's living standards and prices, the central bank may also decide against raising interest rates.
Finally, most experts believe that Japan will not raise interest rates again this year, and if it does, it will likely wait 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 central bank has also indicated that if economic and price trends align with its expectations, a rate hike will be inevitable, as Governor Kazuo Ueda has previously expressed a commitment to normalizing monetary policy.
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 survive on low interest rates and government support, but it has not enabled effective investment and hiring, leading to a proliferation of zombie companies in Japan.
Since the end of the negative interest rate era in March this year, a report released earlier this month by Tokyo Shoko Research indicated that the number of bankruptcies among Japanese companies from April to September has surpassed 5,000 for the first time in nearly a decade, with these bankrupt companies accumulating liabilities as high as 1.38 trillion yen, approximately 9.2 billion USD.
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 rise from 565,000 to around 632,000.
However, it is noteworthy 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 thrive and leads to insufficient labor mobility. In this regard, Lyon Securities strategist Nicholas Smith commented:
"We are not concerned about Japan's unemployment issue; rather, we are most worried about Japan's labor shortage problem."
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