TOKYO -- The market spotlight is shining on the whopping cash piles -- amounting to some 100 trillion yen ($888 billion) -- on which listed companies in Japan are sitting. Investors bet that businesses will soon feel pressured to stop holding back on their reserves and start sharing some of the money with them, or investing it on facilities and human resources.
The Nikkei Stock Average extended its winning streak to 13 sessions Thursday, advancing 5% during the run. A closer look at the market shows that some stocks are surging even higher, including restaurant operator Saizeriya, which jumped 15%.
One simple reason for Saizeriya's advance is the strong earnings report it released last week for the fiscal year ended Aug. 31. But the more powerful draw is that the family-style restaurant chain had a stash of close to 40 billion yen as of the end of August -- with its net cash, or cash and cash equivalents less debt, making up 36% of total assets. Yet the company pays out just 12% of its earnings.
So why are investors buying these cash-rich companies, which typically are not eager to share their profits with them? They are increasingly expecting that pressure is building on the businesses to tap their big cash piles sooner or later to hike dividends or for other purposes, said a strategist at a Japanese brokerage.
The fat corporate cash stash has even emerged as a key element of party manifestos ahead of the lower house election on Sunday. Tokyo Gov. Yuriko Koike, who leads Kibo no To, or Party of Hope, has pledged to consider a new levy on corporate internal reserves. Such a proposal is unlikely to come true, as it would be construed as double taxation. But her statement at an Oct. 6 news conference worked to draw public attention to the large pools of reserves.
Pressure is also growing from the perspective of corporate governance. Many investors feel that companies have more than appropriate levels of cash on hand, said a member of a Financial Services Agency advisory council at a Wednesday meeting, triggering an active discussion on the topic. A handout at the meeting pointed out that Japanese companies are scaling back capital spending, and fewer companies are making large investments in research and development.
Among other cash-rich companies, Asahi Kagaku Kogyo went limit-up Thursday. The chemicals manufacturer said Oct. 12 that it is raising dividends this fiscal year for a second straight year. Hikari Heights-Varus, which operates senior residences in Sapporo, and natural seasonings maker Ariake Japan have also been outperforming the broader market.
Still, it is not easy to identify which companies will start spending their cash. Some investors contend that most of the money must be used for production facilities and human resources, and are starting to pick up machinery and information technology stocks.
Daiwa SB Investments President Masaaki Goto, who recently visited overseas customers, said he was asked when corporate Japan will start using its 100 trillion yen cash stash. If foreign investors flock to the Japanese market in anticipation that companies will boost capital spending, bolster acquisitions and increase shareholder returns, this is sure to help stretch the Nikkei index's winning streak.