SINGAPORE - In banks across Japan sits a pile of money that's bigger than most countries' gross domestic product - the cash reserves of the nation's companies. For some it's a testament to their strength, but to many it's a wasted opportunity.
It's not that the prime minister's efforts haven't borne fruit. Companies are providing larger returns to shareholders since Mr Abe's government instituted new rules for investors and executives starting in 2014. But Zuhair Khan, head of research at Jefferies Japan Ltd, estimates they're only distributing about 40 per cent of profits to stock owners when they could afford to pay out about 70 per cent.
"The reason for high cash levels has shifted from being conservative to becoming a result of improving fundamentals," Lam said."In the last three financial years, Japanese companies' buybacks have reached record high levels and they are mostly financed through their own balance sheet rather than debt."
But the repurchases still pale in comparison to the US market, where the 500 largest companies announced US$800 billion in buybacks last year, according to Societe Generale. And by holding big piles of cash at zero interest, companies end up with lower returns on equity, according to Soichiro Matsumoto, chief investment officer for Japan at Credit Suisse Group.