Japanese companies have executed stock buybacks totaling 6 trillion yen so far this year, far surpassing last year’s 4.9 trillion yen, significantly boosting investor confidence. Recent announcements of record-breaking buyback plans have fueled speculation on whether Japan's stock market can end the year on a strong note.
According to data from the Japan Exchange Group, the increased buyback activity has reduced the number of shares in circulation, thereby enhancing capital efficiency. Yugo Tsuboi, Chief Strategist at Daiwa Securities, emphasized the growing impact of these buybacks on the market.
Seasonal trends have historically supported stock markets, but analysts suggest that sustained growth in Japanese stocks will depend on the yen's stability and political developments in Japan and the U.S.
Bloomberg analyst Yasutaka Tamura attributes the surge in buybacks and dividends to shareholder pressure for companies to use cash effectively and improve returns. Corporate governance reforms initiated by former Prime Minister Shinzo Abe and Tokyo Stock Exchange's demands for shareholder return disclosures have further encouraged this trend.
After efforts to improve corporate governance, Japanese stocks hit a record high in July, although an unexpected interest rate hike by the Bank of Japan led to a severe market crash. Despite this, positive prospects remain. Mitsushige Akino, President of Ichiyoshi Asset Management, believes that buybacks may offset the exit of foreign investment, predicting a possible 10% rise in the Nikkei 225 and TOPIX indices.
Historically, November and December have seen an average increase of about 2% in these indices over the past two decades. However, Tsuboi cautions that future gains depend on currency stability and political developments.
In summary, while cautious forecasts from Japanese companies could pressure stocks amidst global uncertainties, buybacks offer some market relief.
