Japanese stock buyback frenzy cools down for the first time since 2020: valuation rising and global uncertainty prompt Japanese companies to prioritize cash.

Notice that, in the fiscal year ending this Tuesday, the number of stock buyback plans announced by Japanese companies has decreased, marking the first decline since 2020. Data shows that in this fiscal year ending on March 31, Japanese listed companies announced a total of 1365 buyback plans, slightly down from the previous year's 1399. The uncertainty in US tariff policies under the Trump administration may make companies more inclined to hold cash; at the same time, the sharp rise in stock prices has increased caution among companies about buying back stocks at high valuation levels. Yoshiki Nagata, Chief Investment Officer at EnTorch Capital Partners, said that the growing fear of a war with Iran may further suppress buybacks. "If the number of buybacks decreases compared to the previous year, the relative attractiveness of Japanese stocks may weaken." The contraction in buyback size marks the first since the Tokyo Stock Exchange pushed for corporate governance reforms in 2023 to improve capital efficiency. In the previous fiscal year, buybacks reached a record high of 24.9 trillion yen (about 156 billion US dollars), an increase of 27% compared to the previous year, which to some extent reflected Toyota Motor Corporation's buyback as part of its management buyout (MBO) program, repurchasing shares held by Toyota Industries Corporation. Slowdown in Japanese stock buybacks Although buyback measures have been comforting to some investors, critics point out that companies prioritize shareholder returns over growth, including neglecting new investments and mergers and acquisitions. Keiichi Ito, Chief Quantitative Analyst at SMBC Nikko Securities, said, "Until now, many companies have taken a simple and direct approach - reducing share capital through buybacks and increasing dividends to improve Return on Equity (ROE)," "But we may be starting to see more management seriously considering investments rather than buybacks," he added, suggesting he sees this shift as a positive development. After experiencing a surge in recent years, the level of shareholder returns by Japanese companies may remain high. Combining record-high dividend payments of 21.7 trillion yen, total shareholder returns in the previous fiscal year exceeded 45 trillion yen. Tetsushi Wakayama, Senior Fund Manager at Tokio Marine Asset Management, said that as Japanese companies still hold a significant amount of cash and return excess funds to shareholders, buybacks are unlikely to decline significantly. He pointed out that continuing buybacks equivalent to about 2% of market capitalization should help support the stock market. Wakayama stated that "achieving a balance is crucial - returning excess cash flow to shareholders while maintaining disciplined investments to enhance competitiveness and drive growth."