After three decades of ultra-loose monetary policy, even small hikes in interest rates by the Bank of Japan are poised to fuel an increase in the number of zombie companies that could be tipped into insolvency.
Bankruptcies topped 5,000 cases for the first time in a decade between April and September, a report by Tokyo Shoko Research showed earlier this month. Those 5,095 firms collectively account for almost ¥1.38 trillion yen in debt, with the largest slice coming from the service industry.
One of them is HIS Co., one of the country’s largest travel agencies. The Tokyo-based company posted ¥1.4 billion in operating profit in its latest fiscal year, which ends in October, but spent ¥1.5 billion on net interest expenses. Others include the plastics recycling company Eco Research Institute Ltd., medical device supplier Hokushin Medical Co. and Asahi Food Create Ltd., which sold pre-prepared food.
Debt-laden companies in Japan are rapidly growing in number, in some measures even faster than in 1992 after the collapse of its asset price bubble. Zombie companies accounted for 14% of listed firms in Japan, according to Tokyo Shoko Research. When a small or mid-sized firm goes under, their employees are let loose, free to find work elsewhere, hopefully at a company that’s more profitable, productive and better at balancing its books. If anything, it’s a natural if not intended byproduct of the BOJ’s rate hikes, one could that help counteract an ongoing labor shortage as the country’s population ages and shrinks.
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