Link: Japan finds a 'stealth' cure for zombie businesses: Let them fail - The Japan Times

The government is willing to let more underperforming companies fail, three senior government officials said, a previously unreported acknowledgment that they said reflects an urgent need to replace sclerotic businesses with those able to deliver growth. While the officials did not expect such change to occur quickly, they described the shift in thinking as a clear departure for a country that has typically sought to avoid bankruptcies and protect existing jobs at the cost of productivity. The move will help Japan channel workers and investment to its most productive companies in a tight labor market, thereby boosting wages, said the officials, granted anonymity to discuss a sensitive issue. To be sure, the government expects the change to come via mergers and acquisitions, rather than large-scale bankruptcies and lay-offs, one of the people said. The government has help centers to advise small businesses on M&A. Some 251,000 companies were "zombies" last year, meaning their profits didn't cover interest payments over an extended period, according to research firm Teikoku Databank, the highest in more than a decade. The vast majority had 300 or fewer employees. Under government measures released in March, banks are encouraged to help turn around weak companies instead of continuing to prop them up with loans. The measures don't directly mention zombies or "economic metabolism," a term policymakers use to refer to stronger companies replacing weaker ones. When asked if more companies would be allowed to fail, one of the senior officials said, "Yes, that is correct." But the government "cannot say that explicitly," as it would risk a public backlash that would be unwelcome for the ruling party, the official added. "By stealth, we are doing this, gradually doing this," the official said. "Japan's future will be bleak if we cannot raise productivity." #

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