Japanese share buybacks hit record high

Japanese share buybacks have hit a record for the current fiscal year, which closes at the end of March, with the trend set to continue as cash-rich companies increasingly focus on shareholders, spurred on by investor and government demands.  

In recent weeks, multinational conglomerate SoftBank, electronics behemoth Sony, general trading group ITOCHU and other companies have announced plans to buy back shares worth more than ¥1.3 tn ($11.7 bn), bringing the total value of buybacks since April 1 to more than ¥6.5 tn.

That is already the most for any fiscal year since 2003, when new and stricter buyback rules were introduced, according to financial data service group I-N Information Systems.

The move to increase returns to shareholders also comes as the Japanese government steps up its campaign to have firms strengthen governance. Many investors have also assisted in bringing about the change by being critical of Japanese companies for amassing cash rather than investing it or returning it to shareholders, pushing down the return on equity (ROE). This is the measure of the amount of profit a company generates from the money invested in it – and obviously of huge interest to investors. 

Buying back shares reduces a company’s equity base and can boost its ROE. Investors are, therefore, urging companies to pay more attention to their wishes regarding cash reserves, most notably through the government’s corporate governance and stakeholder codes. According to data from the Ministry of Finance Japan, Japanese companies had internal reserves worth a record ¥446.5 tn at the end of the last fiscal year.

In addition, activist investor Oasis Management has been highly vocal in urging Japanese companies to boost returns. In December it failed to block the sale of Alpine Electronics to its larger affiliate Alps Electric, but Alps did respond by announcing a ¥45 bn buyback in January – the third-largest buyback that month.

‘To attract foreign investors, companies should continue this path of increasing shareholder returns, while continuing to improve their corporate governance,’ says Seth Fischer, founder and chief investment officer of Oasis Management, in a statement.

Japan as a whole is under pressure to placate foreign investors after they sold ¥13 tn of Japanese stocks in 2018 – more than four times the sales in 2015 and 2016, and a sharp reversal of the ¥1.9 tn bought in 2017.