Japanese firms announced fewer share buyback programs in the fiscal year ended Tuesday, marking the first decline since 2020.

Listed Japanese companies announced 1,365 buybacks in the year ended March 31, down slightly from 1,399 a year earlier, according to compiled data. Uncertainty over U.S. tariff policy under U.S. President Donald Trump¡¯s administration likely made companies more inclined to hold onto cash, while a sharp rise in share prices increased caution about buying back stock at elevated valuations.

Growing fears over the 51³Ô¹ÏÍø may further curb buybacks, said Yoshiki Nagata, chief investment officer at EnTorch Capital Partners. ¡°If it declines year-on-year, the relative attractiveness of Japanese equities could weaken.¡±

The pullback was the first since the Tokyo Stock Exchange started its corporate governance push in 2023 to boost capital efficiency. Repurchases totaled a record ?24.9 trillion ($156 billion) in the previous fiscal year, up 27% from a year earlier, partly reflecting Toyota¡¯s buyback of shares held by Toyota Industries as part of its management buyout.

While the buybacks had pleased some investors, critics said firms prioritized shareholder returns over growth, including new investments and M&A.

¡°Until now, many companies have taken a straightforward approach ¡ª reducing equity to lift ROE (return on equity) through buybacks and dividend increases,¡± said Keiichi Ito, chief quantitative analyst at SMBC Nikko Securities. ¡°But we may be starting to see more management teams seriously consider investing instead of conducting buybacks,¡± he said, adding that he views the shift as a positive development.

Shareholder returns by Japanese companies are likely to remain elevated after surging in recent years. Combined with record dividend payments of ?21.7 trillion, total shareholder returns exceeded ?45 trillion in the past fiscal year.

Buybacks are unlikely to drop sharply, with Japanese companies still sitting on sizable cash piles and returning excess funds to shareholders, said Tetsushi Wakayama, senior fund manager at Tokio Marine Asset Management. Continued repurchases equivalent to about 2% of market capitalization should help underpin the equity market, he said.

¡°It is important to strike a balance ¡ª return excess cash flow to shareholders while maintaining disciplined investment to enhance competitiveness and drive growth,¡± Wakayama said.