30% of Japanese Listed Companies Increase Dividends
Raise Limits on Treasury Stock Buybacks
Financial Authorities Urge Enhancement of Corporate Value
Japanese companies have begun restructuring corporate value through governance improvements, such as repurchasing their own shares. Thanks to the proactive moves by these companies, there are expectations that the upward trend in the Japanese stock market will gain momentum.
On the 9th, Nihon Keizai Shimbun compiled the expected dividends of Japanese listed companies for the fiscal year ending March 2024 (April 2023 to March 2024) and found the total to be 15.2 trillion yen (approximately 142.1382 trillion won). This represents an increase of 100 billion yen compared to the previous year, which had recorded the highest amount ever. Companies that announced plans to increase dividends accounted for 30% of all listed companies.
Japanese companies are also enthusiastic about share buybacks. Honda plans to repurchase 200 billion yen worth of its own shares, equivalent to 4% of its total shares, as part of shareholder returns for the fiscal year ending March 2024. The watch brand Citizen has decided to buy back 17% of its total issued shares, and Ushio Electric, a specialty lighting company, plans to acquire 17% of its total shares.
Nihon Keizai Shimbun expects that, following last year, this year will also see the largest scale of share buybacks ever. Last year, the limit for share buybacks by Japanese companies reached 9.4 trillion yen, setting a record high, and as of the end of last month, the limit set for this year already amounts to 5.16 trillion yen.
The surge in share buybacks by Japanese companies was triggered by the Tokyo Stock Exchange’s demand for governance improvements to enhance corporate value. In March, the Tokyo Stock Exchange required listed companies with a PBR (Price-to-Book Ratio) below 1 to submit plans for enhancing corporate value. PBR is a term that indicates how much a company’s net asset value is valued in the market. Companies with a PBR below 1 are considered undervalued. According to Nihon Keizai Shimbun, as of the end of March, 50% of Japanese listed companies had a PBR below 1.
The reason many Japanese companies are undervalued is that they have focused on accumulating profits rather than new investments. Since they do not invest in new businesses, stock prices do not rise, while high retained earnings increase assets, lowering the PBR. At the end of last year, the cumulative cash holdings of Japanese listed companies reached 100 trillion yen. Frugal shareholder-friendly policies have also contributed to sluggish stock prices.
Experts analyze that the governance transformation of Japanese companies will have a positive impact on the stock market and the Japanese economy. Drew Edwards, Japan equity manager at the large U.S. asset management firm GMO, said, "With hopes that Japan will escape deflation, managers have started to seriously consider investments," adding, "As a result, the Japanese economy will regain vitality, and foreign investors are moving their funds to Japan, driving up the stock prices of Japanese companies."
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