Japan is entering a new economic era by allowing struggling businesses, known as “zombie companies,” to fail instead of being rescued. This marks a major shift from the country’s long tradition of protecting companies in trouble. For decades, Japan kept weak firms alive through low-interest loans and bailouts, but that approach is now changing as the government pushes for a healthier and more competitive economy.
For years, many small and medium-sized businesses in Japan survived only because the Bank of Japan maintained near-zero interest rates. These companies were unable to pay off debts but continued to operate, creating what economists called “zombie companies.” The practice shielded jobs but slowed innovation and drained productivity.
Now, Japan is finally letting market forces take their course. In March 2024, the Bank of Japan raised interest rates for the first time in 17 years, signaling confidence in economic recovery and inflation control. Regulators have also introduced new corporate governance reforms and laws that encourage restructuring rather than endless financial aid.
According to Teikoku Databank, corporate bankruptcies rose by 13% in the fiscal year ending March 2025, reaching over 10,000 cases — the highest since 2014. Analysts say this increase shows that Japan is ready to embrace what economists call “creative destruction,” allowing stronger and more innovative companies to replace weaker ones.
While the closures are painful for business owners, experts argue that this change is essential for long-term growth. “It’s important for the corporate sector to see healthy regeneration,” said Seijo University professor Yasuo Goto.
The shift has already affected long-standing family businesses like the Sato family’s Hotel Oak Hill and Yoshidaya Ryokan in Yamagata. Once thriving during Japan’s postwar boom, they struggled for years to stay afloat. Eventually, the family decided to close rather than continue with mounting debt — a decision that reflects the country’s evolving economic mindset.
Despite the rise in bankruptcies, Japan’s chronic labor shortage has helped prevent widespread unemployment. Most displaced workers are finding new jobs, easing social disruption. Still, economists warn that the growing divide between successful companies and those that fail could bring social challenges in the future.
As Japan continues this transformation, it signals a bold step toward revitalizing its economy — one where innovation, competition, and resilience take center stage over state protection.
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