The Nihon Keizai Shimbun reported on the 23rd that the Bank of Japan has revised its large-scale monetary easing policy, facing an increasing burden of interest payments by Japanese companies with excessive debts.
According to Nihon Keizai, the balance of loans (gray bonds such as banks) subject to caution, called the bankrupt reserve force, is likely to surpass 60 trillion yen for the first time in nine years this year, further increasing.
Gray bonds are bonds for companies that need to change repayment conditions or suspend repayment of principal and interest, and are virtually classified as “defective bonds.” According to the Japanese Financial Services Agency, the balance of gray bonds at the end of March 2022 was 60.1 trillion yen ( an increase of 15 trillion yen and about 30% compared to the end of March 2019 before the COVID-19 incident spread.
The newspaper reported that the business environment of companies continues to be difficult due to the prolonged COVID-19, reaching about 70 trillion yen, the peak after the Lehman shock in the United States.
The situation in companies is likely to get worse. This is because the repayment of real interest-free and unsecured loans (commonly known as zero loans) introduced as measures for COVID-19 and the increase in loan interest rates due to the Bank of Japan’s policy change are double burdens. As of the end of September, the debt balance of the entire company has risen to 479 trillion yen.
According to Nihon Keizai, if gray bonds turn into bad bonds due to corporate bankruptcy, they will pressure the management of local financial institutions that are less physically strong. 60% of 99 commercial banks are losing money, including securities, due to rising U.S. long-term interest rates (falling U.S. government bond prices) as of the end of September, which is expected to affect loans from local banks.
Of course, the newspaper said that the rise in interest rates is not necessarily negative for companies that have no debt and are rich in cash, so there is a high possibility that the company’s light and shade will be divided in borrowing situations.
A positive effect is also expected for households. The rise in interest rates leads to improvement in the operating environment or suppression of the yen, and positive effects on households cannot be overlooked.