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Anonymous ID: 80ef53 Sept. 7, 2020, 7:36 p.m. No.10561773   🗄️.is 🔗kun

Bank of Japan’s Covid Loan Programs Risk Revival of ‘Zombie’ Firm Concerns

 

The Bank of Japan’s loan programs to help businesses ride out the recession run the risk of creating more zombie companies if they are kept in place for too long, analysts warn. The central bank loan measures, worth almost $1 trillion, have so far fueled a record jump in lending that’s kept firms afloat during the nation’s worst economic slump. The challenge for policy makers is to turn off the tap before an apparently successful lifeline of support for otherwise healthy firms turns into an addictive supply of cash for habitual loss-makers.

 

While countries around the world face potential side effects from unprecedented steps to prop up companies hit by the pandemic, Japan is particularly vulnerable given that the potential for the economy to grow with a shrinking population and low productivity is already close to zero. It also has past experience of enabling inefficient firms to survive on life support. “The longer the support goes on the greater the risk that zombie firms will be allowed to live for longer,” said economist Yuichi Kodama at Meiji Yasuda Research Institute. “Once the economy starts recovering, what used to be good policy can become overkill.” The term “zombie company” was coined during Japan’s so-called lost decade in the 1990s, when banks’ continued support for unprofitable businesses crowded out investment in healthier firms. The legacy of that lives on, with the nation’s labor productivity ranked 21st among the members of the Organisation for Economic Cooperation and Development, according to the Japan Productivity Center. The BOJ has already extended the lending facilities for six months until March, and it may have to do so again given that the economy remains fragile and the pandemic shows little sign of abating, said Hiroaki Muto, an economist at Sumitomo Life Insurance Co. “A history of Japan’s economic policy shows that it’s hard to end a policy once you started,” he said.

 

Banks have about 35 trillion yen ($330 billion) in outstanding loans stemming from the emergency programs, which the central bank introduced in March. Government credit guarantees have also fueled the surge in lending. BOJ Governor Haruhiko Kuroda has downplayed concerns about the emergence of zombie companies. The central bank will exit from the lending programs once demand for them fades, he said at a news briefing in July. Given the gradual pace of economic recovery, the BOJ must continue to support corporate funding for a long time, he said.

https://www.bloomberg.com/news/articles/2020-09-08/boj-s-covid-loan-programs-risk-revival-of-zombie-firm-concerns