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(Bloomberg) – Bank of Japan’s lending systems to companies emerge from the threat of recession and create more zombie corporations if they stay in position for too long, analysts warn.
So far, central bank lending measures of nearly $1 trillion have driven a record increase in lending that has kept businesses afloat in the country’s worst economic crisis. Healthy businesses become an addictive source of money for the same old losers.
While countries around the world face the potential side effects of unprecedented measures to help pandemic-affected enterprises, Japan is especially vulnerable as the potential expansion of the economy with a declining population and low productivity is already close to zero. beyond reveling in allowing inefficient companies through life aid.
“The longer the support, the greater the threat that zombie corporations can live longer,” said economist Yuichi Kodama of the Meiji Yasuda Research Institute. “Once the economy starts to recover, what was once a smart policy can be exaggerated. “
The term “zombie society” was coined in Japan’s so-called lost decade in the 1990s, when banks’ continued help to unprofitable companies squandered investment in healthier companies. Organization for Economic Cooperation and Development, according to the Japan Productivity Centre.
The BOJ has already completed finishing services for six months until March, and you may want to do so again, as the economy remains fragile and the pandemic shows little sign of a slowdown, said Hiroaki Muto, economist at Sumitomo Life Insurance Co. “To the history of Japan’s economic policy shows that it is difficult to end a policy once it has begun,” he said.
Banks have about 35 trillion yen ($330 billion) in notable loans derived from the emergency systems that the central bank launched in March. Government credit promises have also driven increased lending.
“In the short term, the government and bank of Japan deserve it from companies, and they’re doing a smart job,” said Rie Nishihara, banking analyst at JPMorgan Chase.
Read Noah Smith’s column on zombies in business
BoJ Governor Haruhiko Kuroda downplayed considerations about the emergence of zombie societies. The central bank will abandon credit systems once demand has declined, he said at a press conference in July. You’ll have to continue with business funding for a long time, he said.
Already, the total amount provided under the services is more than 4 times the amount deployed through the BOJ under “Operation Monster”, a move introduced in January 2009 to help corporations to the global currency crisis. One explanation is that the central bank encourages banks to use the new systems by paying them an interest of 0. 1% on the amount borrowed.
“They go beyond the monstrous operation,” Satoshi Osanai, principal investigator at the Daiwa Research Institute, said of the most recent effort. “It’s the way banks are actively exploiting them. “
Much of the increase in bank lending ended with deposits, which grew at record speed in August, suggesting that companies are escaping more loans should the recession continue. Bank deposits exceeded loans through 289 trillion yen unprecedented last month, at France’s annual economic rate. production, BOJ figures said Tuesday.
Paying banks to lend represents a replacement for the BOJ, whose negative interest rate policy introduced in 2016 was intended to shake up lending by making monetary establishments pay some of their reserves. Banks have long complained that the measure is undermining loan profitability and will be discarded.
According to Daiwa’s Osanai, carrying out the latest stimulus measures through the BOJ and the government for too long can simply increase the threat of ethical risk, in which loans are granted according to lax criteria without worrying about losses if they deteriorate.
Thanks to the loan avalanche, Japan avoided an increase in bankruptcies even as the economy fell to a record 28. 1% in the current quarter. The number of bankruptcies fell 1. 6% compared to the year before 789 in July, according to Tokyo Shoko Research Ltd This is the fifth lowest month in the last 30 years.
Japan’s loans to small and medium-sized enterprises contrast with those in the United States, where much of the aid has been earmarked for giant corporations through corporate bond purchases by the federal reserve.
Going from a rescue mode to reviving economic expansion will be a major challenge for the replacement of Prime Minister Shinzo Abe, who resigned this month. Yoshihide Suga, the favorite for the position, has committed to the financial easing of the central bank.
“The actions taken through the government and the BOJ were well coordinated,” Nishihara said of JPMorgan. “The challenge is how long this audience will last. “
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