Japanese firms hang loose on cash for investors, tight on wages

Asahi Broadcasting group

09/03/2016 23:00

* Japanese companies announced $9.3 bln in buybacks in 
February 
    * Buybacks, including Softbank and Nissan, at record since 
2011 
    * But real wages fell last year for fourth straight year 
    * Pay rises in 2016 set to be lower still 
 
    By Tetsushi Kajimoto 
    TOKYO, March 10 (Reuters) - Japanese firms sitting on more 
than $3 trillion of cash are buying back their own shares at a 
record rate, while turning a deaf ear to calls from Prime 
Minister Shinzo Abe to step up spending on wages and investment 
to support the economy. 
    In February alone, taking advantage of low prices, Japanese 
companies from Softbank  9984.T  to Nissan  7201.T  announced 
they would buy back a total of $9.3 billion in shares, according 
to Thomson Reuters data - the highest since November 2010 and a 
monthly amount surpassed only five times in the last 30 years. 
    Japan's largest companies are under pressure to boost meagre 
returns for their investors, but the volume of cash funnelled 
back raises doubts over the effectiveness of policies to revive 
growth with cheap cash, part of the government's "Abenomics" 
stimulus programme. 
    Instead, companies are either sitting on cash - inventories 
and cash balances are at record levels - or returning it to 
their shareholders, unable to find investment prospects. Total 
shareholder returns, which include dividends as well as 
buybacks, are at record highs. 
    "This may be a rational behaviour for individual companies 
but if it becomes excessive, that could be a setback against 
Abenomics," said Taro Saito, director of economic research at 
NLI Research Institute. 
    Since Abe came to power, promising to lift the economy out 
of the doldrums with an unprecedented monetary boost, Japanese 
companies have bought back or announced plans to buy back shares 
worth more than $79 billion. That would have been enough to 
build 100 car factories or 30 semiconductor plants. 
    There is little sign of buybacks cooling substantially, as 
companies continue to take advantage of low share prices. 
    Overall capital expenditure, meanwhile, remains below 
pre-financial crisis levels. 
    Nippon Steel & Sumitomo Metal  5401.T , Japan's largest 
steelmaker, announced plans in February to buy back 100 billion 
yen of shares - just over 4 percent of its outstanding stock. 
    The company has already set aside cash to overhaul 
facilities in Japan and sees the increase in treasury stock as a 
tool for the future. Base wage increases, it argues, would have 
raised fixed costs as steel prices languish. 
    "It is in preparation for our strategic actions in the 
future," Nippon Steel Executive Vice President Katsuhiko Ota 
said last month. That could mean taking control of affiliates or 
reinforcing alliances, as it did with Suzuki Metal Industry last 
year, through a share exchange. 
     
    WAGE STAGNATION 
    Another channel for cheap money to boost consumption and 
growth could have been wages, as large companies post record 
profits. 
    But government calls for wage rises to banish the 
deflationary mindset that has bedevilled Japan since the early 
90s have gone mostly unheeded. 
    Price-adjusted wages fell 0.9 percent last year, the fourth 
straight decline, and a Reuters survey last month showed that 84 
percent of big companies plan to raise pay less than 2 percent 
this year.  urn:newsml:reuters.com:*:nL3N15W3V6 
    Fears of job cuts prompted workers at Toyota  7203.T , which 
sets the tone for much of Japan Inc, to seek a monthly increase 
of just 3,000 yen (less than $27) - half of last year's sum. 
    "Given slowing inflation, we can't justify demanding higher 
pay this year," said Masahiro Inoue, deputy secretary-general of 
the Japan Council of Metalworkers' Unions (JCM) which represents 
about 2 million workers from leading industrial unions. 
    The unions have also swallowed the rise in buybacks without 
any hint of distaste. 
    "As long as share buybacks are reasonable and our pay demand 
is satisfied, I see no problems," a unionist at a car 
manufacturer said on condition of anonymity. 
    And yet companies are awash with cash. Government data 
showed corporate internal reserves stood at 350 trillion yen 
($3.11 trillion) in the fiscal year to March 2015, against 300 
trillion yen two years earlier. 
    In comparison, capital spending was only 70 trillion yen, up 
5 trillion yen in the past three years but still below the 76.8 
trillion yen seen before the 2008 global financial crisis. 
    "The fundamental problem is a lack of investment 
opportunities. Many firms are struggling to find a place to 
invest due to waning growth prospects of Japan's economy," said 
Hidenobu Tokuda, senior economist at Mizuho Research Institute. 
 
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Japanese company buybacks    http://tmsnrt.rs/1T9Fmem  
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 (Additional reporting by Yuka Obayashi and Tripti Kalro; 
Editing by Clara Ferreira Marques and Will Waterman) 
 ((tetsushi.kajimoto@thomsonreuters.com; +81-3-6441-1829; 
Reuters Messaging: 
tetsushi.kajimoto.thomsonreuters.com@reuters.net)) 
 
Keywords: JAPAN ECONOMY/CASH