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Business trends

Japan doubles share retirement to $50bn in 2018, hitting record

Big moves by Docomo and others show commitment to shareholder returns

Pedestrians walk past a Tokyo brokerage. Japanese companies have taken share retirement, a way to boost return on equity, to a new high.   © Reuters

TOKYO -- Listed Japanese companies are poised to retire more than 5.3 trillion yen ($47.5 billion) of stock for the fiscal year ending March 31, setting a new high that shows corporations are eager to demonstrate efforts to boost shareholder returns.

The figure is nearly double the 2.8 trillion yen tally from fiscal 2017, according to data compiled by Nikkei. It is also expected to exceed total share buybacks in fiscal 2018, which came to 4.5 trillion yen, as some companies retired existing treasury stock.

The surge largely came from a handful of big moves, including mobile carrier NTT Docomo's roughly 1.15 trillion yen share retirement and Yahoo Japan's 200 billion yen cut. Docomo will retire the equivalent of about 12% of its outstanding stock.

Forty-five companies, such as Toshiba and oil refiner Showa Shell Sekiyu, retired stock for the first time.

"We bought back and retired shares this fiscal year as part of our campaign to bolster shareholder returns," a Showa Shell representative said.

"The recent trend is a sign that more companies are making decisions with an eye on the market," said Kengo Nishiyama, a senior analyst at the Nomura Institute of Capital Markets Research.

Buying back shares lifts earnings per share and return on equity, two measures that investors watch closely to see how well shareholder money is put to use. Listed Japanese companies have struggled to bring ROE up to the level of Western peers.

Retiring shares goes further as a sign of commitment to capital efficiency by eliminating the possibility that shares taken out of circulation can be reissued.

While buybacks remove shares out of circulation, usually by adding to treasury stock, companies may end up selling these shares to fund acquisitions or distributing them as employee compensation.

Either of these options can lead to lower ROE and a less favorable supply-demand balance for the stock.

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