World Economy

Japan Corporate Cash Hoarders Finally Crack Open the Safe

Retained earnings totaled $3.6 trillion at the end of fiscal 2016.Retained earnings totaled $3.6 trillion at the end of fiscal 2016.

Cash-rich corporate Japan has finally started looking for ways to spend. Since the financial crisis, Japanese companies have been preparing for a rainy day by focusing on cash flow. But the piles of cash have hurt returns on equity and shareholders are baying for more dividends or more effective ways to use their money. Now, politicians are looking at ways to penalize hoarding money through taxes.

“Now is the time to act,” said Tokyo Electron President and CEO Toshiki Kawai. “We need to invest in research and development to distinguish our next-generation technologies from our competitors,” Nikkei reported.

The electronic production equipment maker will increase spending on capital assets and research and development for the current fiscal year ending in March, to total 150 billion yen ($1.34 billion). The amount—up 40% from the previous year and the highest spend for the company in six years—will be directed to the development of cutting-edge semiconductor manufacturing equipment and the hiring of engineers.

Fanuc, which makes robots used to manufacture iPhones, is another company looking to invest. The industrial machinery maker plans to enhance production capacity at its site in Tochigi Prefecture, north of Tokyo, where it makes the control systems that serve as the brains of machine tools.

Cosmetics brand Shiseido in October unveiled plans to construct a new factory in Japan, the first time the company is building such a facility on its own turf in 36 years.

According to a survey conducted by The Nikkei, total capital spending by Japanese corporations during the year to March 2018 is expected to rise by 13.6% year-on-year, and will be the first time in four years that it has risen in the double digits.

  Money Under the Mattress

After the so-called dot-com bubble burst in the early 2000s, businesses have tried to keep capital spending below their depreciation expenses to give them enough cash flow. As recently as fiscal 2013, corporate Japan’s capital spending outstripped depreciation expenses—the first time it had done so in 16 years. But the pace of growth of investment drives has remained moderate.

A period of low spending saw companies save up large piles of cash. Recent data showed that cash currently held by Japanese listed companies amounts to a record of 117 trillion yen—an 80% rise from the fiscal 2000 level.

All that cash under the mattress is now starting to get uncomfortable. Politicians have started looking at ways to tax corporate retained earnings, which totaled 406 trillion yen ($3.61 trillion) at the end of fiscal 2016.

While most are biding their time, some companies have made the leap, which hints at a new trend of spending on plants and personnel.


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