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Thread: Toyota $37 Billion Cash Program Shows Effect of Abenomics

  1. #1
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    Toyota $37 Billion Cash Program Shows Effect of Abenomics

    http://www.bloomberg.com/news/2013-0...abenomics.html

    This is exactly what we need in the USA....Trickle-down




    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. (7203), 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. (GM) and Volkswagen AG (VOW) 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.

    “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.

    ‘Turning Point’

    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 (NKY) 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.

    Dividend Boost

    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 UK, who owns shares in the carmaker. “Toyota is now at the point where they are close to their stated targets for net cash balances.”

    While the company isn’t specifying how it will use its growing pile of cash, it is targeting to return 30 percent of profit to investors through dividends, so payouts will increase as income climbs. The company counts 75 percent of its ownership in Japan, meaning higher dividends would mainly go to investors at home, according to data compiled by Bloomberg.

    Toyota is likely to boost its interim dividend 33 percent to 40 yen per share, according to Bloomberg forecasts.

    Japan Spending

    “We want to aim for a dividend payout ratio of about 30 percent, and as our profit increases, raise the dividends,” said Takuo Sasaki, who heads Toyota’s accounting group. On share buybacks, the company doesn’t have any specific plans, he said.

    The company also plans to spend a combined 1.82 trillion yen in capital expenditures and research and development this fiscal year, up by 10 percent, Toyota said last week. Of the 920 billion yen set aside for capital expenditure, almost half will be spent in Japan, according to the company.

    “We do plan to invest in new developments such as advanced technology,” said Sasaki. Considering the global financial crisis, volatile economies and a large natural disaster, cash levels equivalent to three months of sales probably isn’t abnormally high, he said.

    Research Spending

    Toyota, which employs almost 70,000 people in Japan, approved the biggest bonus in five years in agreeing to a union proposal for a 2013 average of about 2.05 million yen, compared with 1.77 million yen in 2012, it said in March.

    Toyota was “very careful” in conserving funds following the global financial crisis, helping it weather an earnings slump, said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion in assets. Now that it’s time to invest again, the carmaker should spend money on research and development, particularly on battery technology, Merner said.

    “I expect Toyota to use its cash on investments that will lead to growth,” said Takashi Aoki, a fund manager at Mizuho Asset Management Co., which oversees about $33 billion. “If it doesn’t need to spend the cash on operations for now, then the company could use it to increase dividends.”

    Dividend Payout

    The carmaker could buy back shares or raise its dividend payout ratio, said Issei Takahashi, an analyst at Credit Suisse Group AG in Tokyo.

    Companies in Japan’s Topix index bought 1.78 trillion yen of their own shares in the first half of the year, the most since 2005, according to data compiled by Bloomberg. Share buybacks in the country may double to 3.8 trillion yen in the fiscal year ending March, Goldman Sachs Group Inc. said in April.

    Toyota last week raised its full-year net income forecast to 1.48 trillion yen, the highest in six years. The company may surpass that target and post a profit of 1.72 trillion yen, based on the average of 20 estimates compiled by Bloomberg.

    The company has a target of producing 10.12 million vehicles this year, which would make it the world’s first carmaker to surpass 10 million.

    “For globally competitive companies like Toyota, it is the right decision to invest for further growth,” said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. “That will help to boost the valuation of Japanese companies.”

    Spending Power

    Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said Toyota is more likely to concentrate investments outside of Japan where opportunity is greater. The domestic car market is shrinking this year, part of a decades-long trend.

    It’s “basically impossible” for Toyota to invest in Japan, Schulz said in an interview. “Since the companies are earning the money overseas, they would rather invest overseas.”

    Abe’s government has set targets for increased investment at home. In February, he met business leaders and urged them to increase wages.

    Even as companies are boosting cash to a record, wages in Japan fell or were unchanged in 10 of the 12 months through June. The government wants salaries raised so inflation doesn’t eat away at consumers’ spending power, undermining an economic recovery.

    Inflation will provide an impetus for companies to spend after deflation encouraged them to hoard cash, Finance Minister Taro Aso said in June.

    No matter how Toyota decides to use its funds, they shouldn’t remain idle, said Williams at GAM UK.

    “As an investor, I am rather indifferent to how Toyota uses that cash as long as they use it,” he said. “A big share buyback by Japan’s largest company would be good, as it could show the way to others.”

    To contact the reporters on this story: Ma Jie in Tokyo at jma124@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

    To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


  2. #2
    Quote Originally Posted by Buster View Post
    This is exactly what we need in the USA....Trickle-down
    Assuming you're right, and it's what "we" need....how do you propose we achieve that, because our domestic corporations are not interested in the current unsure futre economic and regulatory environment.

    So what would be your proposed solution?

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    that they see the way forward to invest in growth. It is out there but sitting on your cash is easy.

    or

    That since we have a "trickle-down" tax system in place the government gives the fortune 500 the "choice" to invest in growth or dividends or government raises taxes on them.

    Even President Reagan knew that a supply side system wont work if the fortune 500 sits on its cash.

    That is why he and Stockman sold supply side economics as "trickle-down"

  4. #4
    Quote Originally Posted by Buster View Post
    that they see the way forward to invest in growth. It is out there but sitting on your cash is easy.
    Perhaps they see it, given the current business climate, as "safe" and "prudent" for their companies.

    To imply that CEO's of major multinational corporations are unaware that "investment" leads to "growth" is somewhat far fetched. The question is one of risk, always has been.

    or

    That since we have a "trickle-down" tax system in place the government gives the fortune 500 the "choice" to invest in growth or dividends or government raises taxes on them.
    So I'll ask you again, since you didn't actually answer:

    How do you propose we achieve this, what would be your proposed solution?

  5. #5
    This is one of the more nonesensical threads I've seen on the political forum which is quite a feat considering some of the threads here. I read the article and it isn't clear what this Abeanomics is at all. There is no explaination (perhaps i missed it) of any tax policy changes that lead to Toyota deciding to spend more money. Outside of the PM urging companies to spend more (sounds similar to Obama's tactics there) I didn't see any tax policy or regulatory policy recommendations. Next Buster, you went off on some tangent about supply side and trickle down economics with absolutely no reference to which policies specifically you are referring to. Even more ridiculous is the idea that the government should strong arm companies in to doing the governments bidding like some sort of communist board of directors. Its possible that I'm not comprehending because the commentary comes from some of far left looney world where statements about trickle down economics are met with cries of yea! warblegarble republicans are greedy racists / Corporations are evil blah blah.

    In short what the hell are you talking about.

  6. #6
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    Since President Reagan taxes have been low for business. Reagan administration stated logic was is we tax business less they will invest more, hire more and pay greater dividends. Also, Reagan agreed that corporations would need to spend much of this un-taxed money. Currently the fortune 500 is sitting on huge piles of cash. I propose we give them an option. Start investing and/or hiring and/or paying dividends or your taxes will be raised.

    Pretty simple.

    Re-japan. It appears that Toyota at the Prime ministers urging decided to break their piggy bank.

  7. #7
    Quote Originally Posted by Buster View Post
    Since President Reagan taxes have been low for business. Reagan administration stated logic was is we tax business less they will invest more, hire more and pay greater dividends. Also, Reagan agreed that corporations would need to spend much of this un-taxed money. Currently the fortune 500 is sitting on huge piles of cash. I propose we give them an option. Start investing and/or hiring and/or paying dividends or your taxes will be raised.
    Reagan left office in 1990, 23 years ago. We've had 6 full and 1 half presidential terms since that time.

    Perhaps you may be better served looking at more recent ideas, rather than trying to blame a President a quarter century ago and now long dead for the tax rates and policy of today.

    Pretty simple.
    It isn't, actually. For example, I still have no idea what the answer to my original question is. So I'm going to have to ask it again:

    How do you propose we achieve this (corporations investing more), what would be your proposed solution?

  8. #8
    Quote Originally Posted by Buster View Post
    Since President Reagan taxes have been low for business. Reagan administration stated logic was is we tax business less they will invest more, hire more and pay greater dividends. Also, Reagan agreed that corporations would need to spend much of this un-taxed money. Currently the fortune 500 is sitting on huge piles of cash. I propose we give them an option. Start investing and/or hiring and/or paying dividends or your taxes will be raised.

    Pretty simple.

    Re-japan. It appears that Toyota at the Prime ministers urging decided to break their piggy bank.

    Just wondering but is it fairly common in liberal circles to say that corporate taxes are low? Its confusing because the US has one of the highest corporate tax rates in the world. Not that relaity has anything to do with the garbage you hear in liberal circles but I was curious. Also did your article talk about some sort of tax policy changes made in Japan because I didn't see that in the text. It just appears to assume that Toyota is spending more because their PM urged them to (a silly premise with no basis in reality).

  9. #9
    Quote Originally Posted by Churchill View Post
    Reagan left office in 1990, 23 years ago. We've had 6 full and 1 half presidential terms since that time.

    Perhaps you may be better served looking at more recent ideas, rather than trying to blame a President a quarter century ago and now long dead for the tax rates and policy of today.



    It isn't, actually. For example, I still have no idea what the answer to my original question is. So I'm going to have to ask it again:

    How do you propose we achieve this (corporations investing more), what would be your proposed solution?
    I wonder if Busters knows that the tax policies enacted during Reagan's term in office helped usher in one of the most prosperous 20 year runs of growth and low unemployment in our nation's history, or that when Reagan took office the economy was arguably worse off then when Barry got the nod. 13 inflation and negative real GDP growth as well as high unemployment when Reagan got the job. Oh what a difference from today's 1% growth stagnation.

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