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Japan’s corporate governance reforms continue to bear fruit, with share buybacks announced by Japanese companies set for a record year. 

This week’s Chart Room shows the cumulative amount has reached ¥9.3tn (USD $57.5bn) in 2024, compared with ¥9.6tn for all of 2023, the highest annual total on record. 

And there’s more good news for shareholders. The number of companies announcing an increase in dividend pay-outs soared to just over a thousand in the first five months of this year, from around 800 in the same period of 2023. At the end of May, 72 per cent of the companies listed in the Tokyo Stock Exchange (TSE)’s prime section had disclosed plans to optimise capital management, unwind cross-shareholdings, or bolster shareholder returns. 

That is remarkable progress for Japan Inc, which had built a reputation for hoarding cash rather than sharing returns with investors. And there is clearly more room for improvement. In the Topix, 59 per cent of non-financial companies have net positive cash balances, compared with 16 per cent for similar companies in the S&P 500 and 19 percent for Europe’s Stoxx 600.[1] With the return of mild inflation, corporate earnings have a promising outlook, which will support companies that want to reward investors. The TSE’s latest plan to revamp the Topix is also expected to push smaller companies in particular to do more. 

Structural reform has been a big driver of the stock rally in Japan. But we can’t ignore the other side of the story. Excessive yen weakness could push up imported inflation, hurting growth in real wages and consumption. And Japanese equities are facing increasing competition within the region. India’s robust growth is attracting foreign investors and China has ramped up similar corporate reforms to Japan in an effort to boost stock valuations. But if Japan’s initiative continues to see results in terms of capital efficiency and returns, then its new shareholder-friendly culture together with a shift to moderate inflation should boost longer-term confidence in Japanese equities. 

  [1] According to Goldman Sachs. 

Jeremy Osborne

Jeremy Osborne

Head of Japan Equity Investment Directing

Judy Chen

Judy Chen

Investment Writer