Asset Management One noted Japanese companies (excluding financials) have an average cash-to-assets ratio of 20.8%, which has acted as a drag on Japanese companies’ returns-on-equity. Credit: iStock
Japanese shares could be set for a double boost in June, as plans for Tokyo to push for an end to corporate cash hoarding and increased investment take shape.
Alongside several shareholder-friendly changes, upcoming reforms to the Corporate Governance Code by Japan's Financial Services Agency are set to encourage the design of remuneration structures linked to shareholder value and emphasise how companies should utilise cash to enhance capital efficiency.
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The reforms come as investor interest in the country has risen, amid an ongoing shift towards a more shareholder-friendly corporate model since the introduction of the Code in 2015.
Japanese Prime Minister Sanae Takaichi's victory in January's snap election, which saw her Liberal Democratic Party sweep to a historic majority on the back of her pro-business and aggressive fiscal policy, has also proved a boon for Japanese stocks, with the Nikkei 225 up 6.7% year-to-date, according to data from MarketWatch.
Asset Management One noted Japanese companies (excluding financials) have an average cash-to-assets ratio of 20.8%, which has acted as a drag on firms' returns-on-equity.
In contrast, the ratio for US companies is around 7.9%, while, for European businesses, it is approximately 8.7%, the Japanese asset manager highlighted.
This had been a point of concern in recent years, according to Katsunori Ogawa, chief portfolio manager of SuMi trust's Sakigake High Alpha strategy, but the upcoming revision "should ultimately support enhanced shareholder returns".
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He expected corporate disclosures of non‑financial information, including matters related to human capital and sustainability, to become more comprehensive after the revision, while a stronger commitment to prioritising shareholder engagement would help companies show greater transparency and sound management practices.
Ogawa said this would "give more opportunities for shareholders to more accurately assess the company's value‑creation capability", rather than relying solely on traditional financial information.
Share buybacks and dividend increases
Japanese companies are already expected to set a new share buyback record of ¥20trn (£94.1bn) by the end of the year to March 2026, said Asset Management One chief strategist Hitoshi Asaoka.
"Major domestic financial institutions, including megabanks and large insurers, have indicated plans to continue selling cross-shareholdings through 2030. The cash raised from these sales can be used to fund share buybacks," Asaoka explained.
Additionally, Japan is leading the pack in terms of dividend payouts, with Capital Group's third annual Dividend Watch report showing that core dividend growth surged 12.5% in 2025 to a record $107.7bn – twice as fast as the global average – supported by a strong yen.
This reflected greater focus on governance and shareholder remuneration, according to Capital Group – something Jonathan Drexel, senior portfolio manager on the Allspring International Equity fund also identified.
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"When companies adopt a more disciplined approach to dividends, share repurchases, margin improvement, divestiture of non-core assets and returns on capital, it certainly grabs our attention," he explained.
Drexel revealed the fund had increased its weighting to Japan over time, which would not have been possible without management teams' focus on dividends and capital allocation.
He highlighted both Toyota and Hitachi as companies that have embraced this shift, with Toyota undertaking one of the largest chnages in governance by reducing cross-holdings.
"Historically, these structures created perceived conflicts of interest and raised questions about whether management was operating solely in the best interests of shareholders. By unwinding these positions, Toyota enhances transparency and allows investors to focus on the strength of the underlying business," he explained.
Meanwhile, Hitachi has also executed significant structural and capital allocation reforms over the last five years, with dividends growing at a mid-teens rate and share repurchases accelerating from 2022.
"In both cases, we feel that strong stock performance for these names reflects the market's confidence in more disciplined capital allocation, increased governance and a clearer alignment between management and shareholders," Drexel said.
