Published : Aug. 5, 2013 - 20:00
Prime Minister Shinzo Abe has been urging Japan’s companies to spend their growing piles of money to bolster the country’s economy. Toyota Motor Corp., with cash swelling to about $37 billion, is beginning to comply.
The carmaker said on Aug. 2 that net income almost doubled to 562.2 billion yen ($5.7 billion) last quarter ― more than General Motors Co. and Volkswagen AG combined ― as U.S. sales rose and the weaker yen boosted overseas profit. Cash and marketable securities rose 11 percent and totaled the most of any non-bank in Japan, according to data compiled by Bloomberg.
Toyota is starting to spread the wealth. The company is raising capital spending and research expenditure 10 percent this fiscal year, paying workers the highest bonuses since 2008, and planning higher dividends as income surges. The moves show how Abe’s efforts to revive Japan’s economy are gaining support from the country’s biggest exporter and may foreshadow spending by more Japanese companies.
Akio Toyoda, president of Toyota Motor Corp., speaks during a news conference in Tokyo. (Bloomberg)
“Abenomics is on its way to creating a better environment for companies,” Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute in Tokyo, said by phone. “What Toyota spends its cash pile on may provide a hint of the future of Abenomics.”
The conservative approach of top Japanese companies has been a challenge for Abe as he tries to jump start an economy that has stagnated for two decades. The companies’ cash reached a record 225 trillion yen in the first quarter of this year, exceeding the size of Italy’s economy.
Japanese companies have focused on building up reserves to be prepared for uncertainties, after the financial crisis and Japan’s March 2011 earthquake and tsunami, said Haruka Kazama, an economist at Mizuho Research Institute.
“This year might be the turning point for them to change that tendency,” Kazama said. “They’re now able to start investments they’d postponed.”
Japan’s benchmark Nikkei 225 Stock Average has jumped 69 percent in the past year as Abe’s drive to end years of deflation through monetary easing and fiscal stimulus weakened the yen, boosting exporters’ earnings from overseas. Toyota’s shares more than doubled in the 12 months through Aug. 2 as the yen weakened 21 percent against the dollar.
Toyota’s cash and marketable securities rose to 3.63 trillion yen at the end of June, or more than twice the $18 billion debt that prompted Detroit to file for the largest municipal bankruptcy in U.S. history last month. Among automakers, only Volkswagen had more, with $37.6 billion as of June 30, data compiled by Bloomberg show.
How aggressively Toyota spends its money will have implications for the Japanese economy and for the company’s growth prospects. Investors see opportunities both to invest and return cash to shareholders.
“They could raise their dividend, undertake share buybacks or M&A,” said Ben Williams, a London-based fund manager at GAM U.K., who owns shares in the carmaker. “Toyota is now at the point where they are close to their stated targets for net cash balances.”
(Bloomberg)