Japan's interest rate hike may trigger a wave of corporate bankruptcies: the number of bankruptcies this year has exceeded 5,000, with debts reaching 1.38 trillion yen
Original title: "〈Japan's interest rate hike effect〉 Zombie companies collapsed: the number of bankruptcies exceeded 5,000 this year, and the debt reached 1.38 trillion yen"
Original author: Editor Jr., BlockTempo
Against the backdrop of major global economies including the United States, Europe and China launching monetary easing policies, the Bank of Japan went against the current and not only ended the era of negative interest rates since 2007 in March this year, but also announced another interest rate hike at the end of July, causing a large number of arbitrage traders to close their positions and the market to plummet.
At the end of this month, from the 30th to the 31st, the Bank of Japan will hold another two-day monetary policy meeting. The market is also paying close attention to whether Japan will choose to raise interest rates this time.
Reuters: Japan's chances of raising interest rates in October are low
Against this background, Reuters reported on October 21 that the Bank of Japan may not be in a hurry to raise interest rates again at this month's monetary policy meeting for the following reasons:
Bank of Japan Governor Kazuo Ueda previously said that it would take time to examine the risks of raising interest rates, such as uncertainty in the U.S. economy.
Japan's House of Representatives will hold an election on October 27, and the United States will also hold a globally watched general election on November 5. This will make the Bank of Japan choose a more cautious stance in the context of such major events.
Slowing global economic growth or a lack of confidence among households and businesses could also lead the Bank of Japan to choose not to raise interest rates for now.
If the yen fails to continue to depreciate, the cost pressure of Japan's imported goods will ease, and people's lives and prices will not be significantly affected, the central bank may not raise interest rates.
Finally, most experts also believe that Japan will not raise interest rates again this year, and even if it does, it will have to wait until the end of 2025 or the beginning of 2026.
However, it is worth noting that although many factors currently tend to indicate that the Bank of Japan will not raise interest rates this month, the Bank of Japan has also indicated that if economic and price trends are in line with its expectations, interest rate hikes will be inevitable, because Bank of Japan Governor Kazuo Ueda has already expressed his determination to promote the normalization of monetary policy.
Japan's interest rate hike could trigger wave of corporate bankruptcies
Another change observed in the market is that Japan's long-term loose monetary policy has allowed many companies to rely on low interest rates and the government to survive, but have been unable to make effective investments and hire, leading to the proliferation of zombie companies in Japan.
Since the end of the era of negative interest rates in March this year, according to a report released earlier this month by Tokyo Shoko Research, the number of bankruptcies of Japanese companies in April-September this year exceeded 5,000 for the first time in nearly a decade, and the debts of these bankrupt companies were as high as 1.38 trillion yen, or about US$9.2 billion.
According to a research report by CLSA, every 0.1% increase in the benchmark interest rate may cause the number of zombie companies that use most of their profits to repay debts to increase from 565,000 to around 632,000.
However, it is worth mentioning that the bankruptcy of these zombie companies may not be a bad thing for Japan, because their existence makes it difficult for new Japanese companies to obtain a good growth environment and labor mobility is not sufficient. In this regard, Nicholas Smith, a strategist at Lyon Securities, commented:
"We are not worried about unemployment in Japan. On the contrary, what we are most worried about is the labor shortage in Japan."
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