Pushed to the Edge.(Japanese economy)

A hundred yen doesn't fetch much in Tokyo these days: a few pencils, a plastic hairbrush, the cartoon stickers popular with teens or a stake in one of Japan's biggest companies. Even for the equivalent of 80 cents, few investors think shares in massive companies like truck maker Isuzu Motors, condo builder Daikyo or trading house Nissho Iwai are worth the price. Since a tough reformer, Heizo Takenaka, became economic czar two weeks ago, Japan Inc.'s troubled giants have led one of the steepest stock-market sell-offs in memory. Last week the Nikkei Stock Average plunged below 8,530 points to end near a 19-year low on Friday. The reason: chronic underachievers, what the Japanese now call "zombie" companies, have turned the nation's main stock exchange into a [yen]100 shop.

The stock rout portends great upheaval within Japan Inc. Investors are dumping zombie shares because they've lost confidence that the banks, and by extension the government, will continue to coddle half-dead companies in crowded sectors like retail, trading and construction. Officially, Japanese banks already carry some $420 billion in bad loans on their books. Foreign analysts say the real tally could be as high as $1.9 trillion. Sooner or later, banks will have to cut off life-support lending to their worst clients in order to save themselves. Takenaka roiled markets further last week when he told NEWSWEEK that he did not believe any company is too big to fail, suggesting that the day of reckoning may be coming sooner than many people had expected.

He didn't name names. But likely targets include scores of companies big and small. NEWSWEEK examined seven that investors fear are on the chopping block (chart). They top the Nikkei Financial Daily's ranking of worst stock-market performers during the first week of Takenaka's tenure. Their share prices have plunged a quarter or more this month. Each carries at least [yen]400 billion ($3.2 billion) in debt and closed last Friday at [yen]143 ($1.15) a share or less. And some of them may not have long to live.

Vegetables: Until now Daiei Inc. has defined the phrase "too big to fail" in Japan. The retail conglomerate, once a housewife's best source for soap powder and green vegetables, carries more debt ($17.3 billion) than many countries. For years, following "guidance" from the government, banks forestalled Daiei's collapse with new loans. Why? The establishment feared that a megabankruptcy would send shock waves through Japan's distribution chain, costing 100,000 jobs. With bubble- era resorts, hotels and a professional baseball team (the Hawks) still weighing down Daiei's balance sheet, the company requires periodic cash infusions to stay afloat. Banks comply because borrowers as big as Daiei have been known to bring their bankers down with them when they fail. So at predictable intervals they write new loans at near-zero interest while simultaneously forgiving past debt, a feat ratings expert Akio Mikuni calls "reverse-credit-risk pricing." This year alone banks in Japan have bailed out Daiei to the tune of $4 billion. Will they ever stop? Worries that the government might now pull the plug have made Daiei the market's biggest loser of late--down some 52 percent this month.

Lipstick: Cosmetics giant Kanebo Ltd. finds itself in similar straits. It carries $4 billion in debt and employs nearly 15,000 people. Its share price sank nearly 30 percent to [yen]137 this month. Founded 115 years ago as a textile mill, Kanebo transitioned into cosmetics to become Japan's second largest maker of lipstick, skin treatments and toiletries. But its loss-making textile operation and debts from dumb real-estate deals (including a lavish resort complex near Mount Fuji) have rendered the company nearly insolvent. "The current stock price is not reflective of our company's actual condition," says spokesman Hoji Muranishi. Still, investors will likely demand a makeover before they return.

Bricks: Construction is Japan's fattest industry. With 500,000 companies employing about a tenth of the national work force, competition can be deadly for firms with huge debts. Daikyo Inc., Japan's largest condominium builder, ...