Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
It has been a historic start to the year for Japan’s markets. The country’s benchmark Nikkei 225 index closed above the 54,000 mark for the first time on Wednesday, an all-time high, remarkable for an economy long defined by stagnation. Local companies are on track to return a record ¥20tn ($127bn) in dividends to shareholders in the current fiscal year.
The rise in the index, up nearly two-thirds from an April low, is a departure from the stop-start rallies that have characterised the market since 2012. Optimism that a possible snap election would clear the way for Prime Minister Sanae Takaichi’s ruling bloc — with the kind of expansionary fiscal agenda that often benefits stocks — has added a boost.
But the growth of dividends also signals a break from Japan’s past. Faced with weak consumption and deflationary pressures, and little in the way of shareholder activism, it has been easy for companies to hoard cash rather than invest it for growth or pay it back to investors. Non-financial companies still sit on a war chest of more than ¥110tn.
Payouts to shareholders have more than doubled over the past decade; companies are paying out roughly one-third of what they earn. This is partly because governance reform has made boards more responsive to shareholders. Along with climbing stock prices, this makes a twofold boost to Japanese households’ wealth.
There is a legitimate question about how solid the rally is. The drivers for now don’t seem to be growth or demand. Japan expects real GDP growth of 1.3 per cent in fiscal 2026. A large chunk of exporters’ earnings growth has been reliant on a weak yen, which could reverse.
Even so, higher dividends can have a tangible and lasting effect on those who participate in the stock market. Japanese households now hold about a fifth of all listed shares. Household financial assets rose to a record ¥2.3 quadrillion — a unit that represents a thousand trillion — at the end of September, as equity holdings rose nearly a fifth and investment trust holdings grew 21 per cent, according to the Bank of Japan.
With rising dividend income as their focus, retail investors often flip stocks relatively infrequently, meaning even a less than thrilling economy can be consistent with stable or rising prices. Japan stands out as a useful template for economies whose future include low growth and an ageing population: stagnation, if managed well, can still deliver returns.
