Japanese Stock Market Rally Threatened by Zombie Companies, Says Expert

Tide goes out

In Japan's context the term was first used after the asset bubble and subsequent crash of the 1990s where banks continued to support companies that would have otherwise gone bankrupt.

Covid exposed

Despite the pandemic the Bank of Japan's liquidity programs allowed companies to coast along without restructuring or taking risks leading to a growth in zombie firms.

Impact of rising interest rates

Raising rates could push zombie companies to the brink of collapse and halt the bull run in Japan's stock markets.

Difficult decision for the BOJ

The central bank faces a tough choice at its monetary policy meeting in March and April should it step away from its negative interest rate policy or continue to prop up struggling firms?

Overstated danger?

Some analysts believe that zombie companies mainly consist of smaller businesses while large cap companies have enough cash reserves to weather interest rate hikes.