TOKYO: Japanese companies plan to repurchase ¥4.2 trillion (US$32.4 billion) of their own shares this fiscal year, nearly double the amount from a year earlier as businesses reroute cash stockpiled during the pandemic toward investor rewards.
Hitachi will repurchase ¥200 billion of its own shares, marking the first buyback in eight years and a record for a single tranche.
Phone carrier NTT will buy back ¥400 billion and Apple supplier Murata Manufacturing will repurchase up to ¥80 billion in the first buyback executed in roughly a decade.
This comes as the Japanese economy and corporate earnings head towards recovery. Funds on hand among listed companies that closed their books in March stood at ¥99 trillion on Dec 31, 2021, up 16% from the end of 2019.
Nikkei reviewed stock buyback plans for the current financial year released by listed companies in April and May and found the total has soared by 94% from the same period last year, touching a high not seen since fiscal 2006.
Buying back and cancelling shares have the effect of raising the per-share income for a stockholder. Allocating surplus funds toward buybacks improves capital efficiency for the company.
“Stock buybacks are investments into the future because gains in capital efficiency give rise to market confidence,” said Sony Group chairman and president Kenichiro Yoshida.
The Nikkei Stock Average is down 10% from last year’s high, largely due to headwinds from global monetary tightening. Stock buybacks send the message that companies believe their shares are undervalued.
Corporate America has been moving more aggressively on this front. Major US companies have announced more than US$400 billion in buybacks this year, roughly 20 times the total for their Japanese counterparts over that period.
But some American companies, including Starbucks, have halted buybacks, prioritising other expenditures such as raising wages.
Japanese companies raised pay by an average of 2.28% in 2022, a four-year high, according to a Nikkei survey.
How to split cash between investor returns and investments in future growth, such as capital spending and research and development, will be a key question for businesses.