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Zombie Companies May Finally Succumb to Bankruptcy on BOJ Hikes

AInvestMonday, Oct 21, 2024 5:26 pm ET
1min read
The Bank of Japan's (BOJ) recent decision to end its negative interest rate policy and raise rates for the first time in 17 years may spell the end for many "zombie" companies in Japan. These companies, defined as being unable to cover their interest payments with profits for at least three consecutive years, have been kept afloat by ultra-loose monetary policy and government support. However, the BOJ's rate hike could finally push these firms over the edge, leading to an increase in bankruptcies.

The BOJ's rate hike will increase the cost of borrowing for zombie companies, making it more difficult for them to service their debts. This could lead to a wave of bankruptcies, as these firms struggle to meet their financial obligations. While some analysts argue that this could invigorate the economy by freeing up resources for more productive firms, others warn of potential drawbacks, such as increased unemployment and regional economic disparities.

The increase in bankruptcies could have significant implications for the job market. While some workers may find better opportunities in growing industries, others may struggle to find new employment, particularly older workers who may face age discrimination. The BOJ's rate hike could also exacerbate regional economic disparities, as areas with a high concentration of zombie companies may experience higher unemployment rates.

To mitigate potential unemployment issues, the government could implement policies to support affected workers, such as retraining programs and income support. Additionally, the BOJ could consider targeted measures to support small and medium-sized enterprises (SMEs) that are not zombie firms but may still struggle in the face of higher borrowing costs.

In conclusion, the BOJ's rate hike may finally put an end to Japan's zombie companies, but it could also bring significant economic and social challenges. Policymakers must carefully navigate these challenges to ensure that the benefits of a more dynamic economy are shared widely and that the most vulnerable members of society are protected.
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