It has been a historic start to the year for Japan’s markets. The country’s benchmark Nikkei 225 index closed above the 54,000 mark for the first time on Wednesday, an all-time high, remarkable for an economy long defined by stagnation. Local companies are on track to return a record ¥20tn ($127bn) in dividends to shareholders in the current fiscal year.
The rise in the index, up nearly two-thirds from an April low, is a departure from the stop-start rallies that have characterised the market since 2012. Optimism that a possible snap election would clear the way for Prime Minister Sanae Takaichi’s ruling bloc — with the kind of expansionary fiscal agenda that often benefits stocks — has added a boost.
But the growth of dividends also signals a break from Japan’s past. Faced with weak consumption and deflationary pressures, and little in the way of shareholder activism, it has been easy for companies to hoard cash rather than invest it for growth or pay it back to investors. Non-financial companies still sit on a war chest of more than ¥110tn.