Japanese groups spend $6.5bn on buy-backs

Japanese companies bought back shares worth Y750bn ($6.5bn) in August as world stock markets gyrated in the wake of the global credit squeeze.

The monthly total was the highest this year, according to Nomura Securities, and second only to September 2005, when the total of Y756bn was inflated with a substantial buy-back by NTT from the Japanese government. The August level was equivalent to about 0.2 per cent of the total market capitalisation of the Tokyo Stock Exchange.

Blue-chip companies such as Canon, Mitsubishi Corporation and JFE Holdings, Japan’s second-biggest steel company, took advantage of the global stock market sell-off, in which the Nikkei 225 average lost 4 per cent, to scoop up their own shares on the cheap.

However, the trend in Japan contrasts starkly with the US, where companies have been sharply reducing buy-backs.

September is set to become the weakest month in nearly four years in the US, with buy-backs announced worth just $3.7bn, according to Thomson Financial. US companies fear that a prolonged credit squeeze and a sharp economic slowdown could take a severe toll on their operations.

“The reason why a rift is growing between the US and Japan in terms of buy-backs is because Japanese firms have very little to no exposure to the US subprime lending crisis,” said Kengo Nishiyama, a strategist at Nomura Securities’ Financial & Economic Research Centre.

“The fundamentals of Japanese companies have not changed, so their shares suddenly look undervalued.” Buy-backs are expected to remain robust through to March, thanks to growth in earnings and an increased awareness among companies of the need to use excess cash to reward shareholders.

Nomura estimates that Japanese companies will spend more than Y4,000bn on buy-backs in the year to March, leapfrogging the record Y3,980bn of last year.

Canon, Japan’s third-biggest company by market capitalisation, has bought Y450bn of its own shares this year, as it seeks to “improve capital efficiency for share exchanges used for mergers and acquisitions”.

Canon is sitting on Y1,000bn in cash, and Fujio Mitarai, its former chief executive, has repeatedly stressed the company’s desire to make an acquisition. Canon has bought 70.7m of its own shares since February, about 5.3 per cent of its outstanding shares.

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