Firstly, years of corporate governance reforms are starting to pay off, nudging companies towards a more strategic and focused approach. Secondly, inflation has finally returned after two decades of stagnant prices and wages.

That means it no longer makes sense to keep large piles of cash on corporate balance sheets – a common tendency among Japanese companies, who have amassed some JPY258 trillion of cash on their books to the chagrin of investors.

Over the coming months, we expect companies to start spending those cash piles. The quick and easy way to do so would be through share buybacks and dividend payments. The more strategic, long-term options include merger and acquisition activity and capital expenditure. Both paths should be good news for investors.

Spending spree

We are already seeing signs of companies loosening their purse strings. According to the Tankan survey, they are intending to invest faster than they have at any point in the last 40 years (see chart). That momentum will only strengthen as domestic activity picks up. (Our economists estimate Japan’s gross domestic product to grow by around 1.5 per cent in 2024 – above potential and faster than both the US and the euro zone.)

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