Japanese households are set to receive 3.5 trillion yen ($23.6bn) in dividends this fiscal year, according to Nikkei, as domestic companies push payouts to a fifth straight annual record. This statistic indicates a significant shift in income distribution to households.
Japan’s citizens are not known for their stock market enthusiasm – even now, 1,100 trillion yen (or $7.5trn) of their wealth remains parked in cash and deposits according to data from the Bank of Japan.
But as inflation continues to quietly erode savings and dividends, income continues to grow, and this legacy is quietly being turned on its head.
Stimulated by governance reforms and a revamped NISA (Nippon Individual Savings Account) scheme making equity investment more attractive, more households are starting to reallocate their wealth.
Given the sheer scale of cash primed for reallocation, we are expecting the resulting flow of capital into Japan’s equity markets to be significant if current trends continue.
Shifting corporate priorities
Two main headwinds are converging to drive this structural and cultural shift. On the corporate side, pressure from the Tokyo Stock Exchange (TSE) is playing a significant role.
The TSE has explicitly urged listed firms to justify their cost of capital and improve their capital allocation, even going as far as to highlight underperformers in its public communications.
With companies on the TSE Prime Market currently sitting on some 112 trillion yen ($769bn) in cash, the need to put capital to more productive use is pressing.
Naturally, one key incentive being deployed by many management teams is to lift dividend payouts. According to Nikkei (July 2025) estimates, total dividends from around 2,300 companies are expected to rise 3% to 19.99 trillion yen this fiscal year.
That’s a 66% increase on 2018, despite forecasts for a 7% drop in aggregate net profits in 2025.
This signals a broader commitment to shareholder returns. And with individuals holding just under one-fifth of shares in listed stocks, some 3.5 trillion yen of those dividends are expected to flow directly to households on a pre-tax basis.
This is likely just the beginning. The pressure for continued reform remains high. TSE CEO Hiromu Yamaji recently told the Nikkei that only “15% to 20%” of the planned scale of reform has been achieved.
With this in mind, we expect corporate capital efficiency (and by extension, shareholder income from equities) to remain firmly in focus in the years ahead.
Dividends as an inflation hedge
On the household side, Japan’s inflation dynamic is equally important here. Real wages have been falling by 2.9% year-on-year in May as per preliminary results for the Japanese government's monthly labour survey. Savers are becoming acutely aware that low-yielding deposits and cash holdings will no longer preserve their wealth.
In comparison, rising dividends are offering an increasingly attractive source of real income, not only protecting purchasing power but perhaps even enhancing it. It’s no surprise, then, that Japanese households are beginning to reconsider long-held attitudes to risk.
The revamped NISA scheme, relaunched in 2024, has played a key role in this respect. By increasing tax-free allowances and making those tax breaks perpetual, the products have broadened their appeal to retail investors.
Last year saw record inflows into the scheme. And while this was admittedly from a low base, we believe this indicates a longer-term trend toward increased household investment: if inflation persists and dividend growth continues, those inflows are likely to accelerate.
The bigger picture
What we’re witnessing is a cultural and financial shift on two fronts. Japanese companies are beginning to recognise excess cash as a drag on both their performance and reputation and Japanese households are increasingly coming around to the idea of seeing idle cash as a missed opportunity for wealth preservation.
Together, these trends have the potential to unlock opportunities for Japanese investors.
As companies raise dividends in response to pressure from the TSE, investors move more money from cash into stocks. That, in turn, strengthens the incentive for companies to continue enhancing shareholder returns.
It’s a virtuous cycle. And one that could unlock a significant portion of the 1,100 trillion yen currently sitting dormant in household savings.
We believe we’re still in the early stages of this structural reallocation with Japanese equities the likely beneficiaries.
Theo Wyld is portfolio manager of the Chikara Japan Income & Growth trust and the Chikara Japan Income & Growth fund. The views expressed above should not be taken as investment advice.