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Equities

Stock rally boosts paper profits at Japanese companies

Businesses more inclined to unwind cross-shareholdings

A strong year for Japan's stock market has companies sitting on large unrealized capital gains.

TOKYO -- Major Japanese companies have seen unrealized capital gains on their shareholdings balloon over the past year as the stock market has swung upward.

These paper profits came to 17.34 trillion yen ($164 billion) as of Tuesday at 1,701 listed companies that close their books in March, according to a Nikkei survey that excluded financial institutions as well as businesses using international accounting standards. The figure rose by 3.33 trillion yen from the end of March 2017 to reach the highest in records dating to fiscal 2000.

A separate survey by Daiwa Securities shows that unrealized gains at five major Japanese banking groups grew 1.2 trillion yen during the same period to reach 8.9 trillion yen.

Combined, those paper profits totaled more than 26 trillion yen, an increase of 4.5 trillion yen.

Though share prices have stumbled since late January, the Nikkei Stock Average remains 12.7% higher than at the end of last March. The index rose 2.7% to close at 21,317 on Tuesday as concern over U.S.-China trade friction abated.

"Long-term investors, individual or institutional, are generally sitting on unrealized gains," said Masakatsu Saito, president of Kabu.com Securities.

Rising prices give companies a reason to unwind cross-held shares, in which companies invest in one another. More than 30% of shares were cross-held during Japan's economic bubble, which collapsed in the early 1990s. But these shares accounted for a record-low 10.1% at the end of March 2017, according to Nomura Securities, amid corporate efforts to use capital more efficiently and reduce assets.

The five major banking groups booked 440 billion yen in profit from share sales for the nine months ended in December, up nearly 50% on the year. This increase underpinned earnings amid a 22% drop in net business profit, which stems from core operations.

Nonfinancial companies are unloading shareholdings as well. Cosmetics maker Shiseido sold part of its holdings in Mizuho Financial Group and Tokio Marine Holdings last year.

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