Features

A shake-up at Japanese corporations

Improved corporate governance, better relationships with shareholders and more companies paying dividends. Japanese corporations are finally getting their act together.

939_MW_P05_markets_main

"Things are getting testier at Japan Inc," says Jeffrey Goldfarb on Breakingviews. Trading house Itochu has been waging a hostile takeover war against sportswear maker Descente, and IT conglomerate Toshiba is grappling with a shareholder insurrection.

This highly unusual "domestic corporate aggression" highlights the progress Prime Minister Shinzo Abe has made with structural reforms designed to bolster productivity and growth.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

The reforms constitute the third of the three "arrows" his economic policy, "Abenomics", has been based on. The first is monetary policy, with the Bank of Japan massively expanding its money-printing programme in recent years; the second is fiscal stimulus.

The third has focused on corporate governance. There has been a push for more independent directors on company boards. Stock buybacks are on the rise, and relationships with shareholders are improving.The shake-up should help generate better shareholder returns and overall growth.

Advertisement
Advertisement - Article continues below

A key consequence of the third arrow has been a significant rise in the number of companies paying dividends. Previously, "companies tended to hoard cash", Tom Becket of investment management group Psigma told The Times. What strikes Becket, however, is that "nobody seems to be talking much" about Japan's corporate-governance revamp. The overlooked market thus offers good value.

One reflection of that is that the Topix index currently yields more than America's S&P 500: 2.3% compared with 1.95%.

A tight labour market

Having long opposed immigration, Japan is now granting foreign workers short-term visas for the tightest sectors. This labour-market tightness is gradually bolstering wage growth. That bodes well for consumption, which accounts for 60% of GDP. Spending by households and businesses helped ensure that GDP rebounded to an annualised rate of 1.4% last quarter, after shrinking in the third quarter.

The medium-term outlook, then, is auspicious, while a short-term boost for the stockmarket may also be on the cards. Japan's economy is highly exposed to China's, so progress on the trade front would be excellent news, as Jeffrey Halley, senior market analyst at Oanda, told Bloomberg. If "an acceptable deal gets over the line, we should see foreign buyers returning to Japan's equitiesin force".

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/517688/the-british-equity-market-is-shrinking
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stock markets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019

Most Popular

Visit/520525/currency-corner-how-high-can-the-pound-go-against-the-euro-in-2020
Currencies

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Visit/520338/how-much-the-state-pension-will-rise-by-this-year
Personal finance

How much the state pension will rise by this year

While Boris Johnson promised to hold a full budget within 100 days of his election victory, many of the details of next year’s state pension increases…
10 Jan 2020
Visit/520575/20-predictions-for-the-2020s
Investments

Where will markets be in 2030? Here are 20 forecasts for the 2020s

A lot has changed in the last ten years – stockmarkets soared, technology transformed our lives and politics has changed beyond measure. Here, Dominic…
14 Jan 2020
Visit/520553/money-minute-wednesday-15-january
Economy

Money Minute Wednesday 15 January: UK inflation and house prices

In today’s Money Minute, we look ahead to the latest UK inflation and house price figures, plus we have Germany’s GDP data for 2019.
15 Jan 2020