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Prime Minister Fumio Kishida’s suggestion of restricting share buybacks spooked Japan’s markets Tuesday, but analysts are doubtful that such a policy will be implemented.

A limit on share buybacks at a time when companies are following the rules is “complete nonsense,” said Seiichi Suzuki, a market analyst at Tokai Tokyo Research Institute Co. If Kishida were to impose restrictions, it might be possible to do so for companies that have a high book value, he said, but even that would be difficult.

Chizuru Morishita of NLI Research Institute and Hiroshi Namioka of T&D Asset Management were similarly doubtful that Kishida’s words could lead to any aggressive restriction on buybacks. While a cap could be applied to the level of total shareholder returns, it’d be difficult to implement given the varying size of each company, Morishita said.

A ban on buybacks could also lead to management spending money on risky investments instead, Namioka said.

Prime Minister Fumio Kishida speaks at a meeting of the Lower House budget committee on Tuesday. | KYODO
Prime Minister Fumio Kishida speaks at a meeting of the Lower House budget committee on Tuesday. | KYODO

Kishida’s indication Tuesday that he could consider “guidelines” for company share buybacks triggered a dip in the nation’s stock market, which has been boosted by such repurchases in recent years. The blue-chip 225-issue Nikkei average briefly dipped 1.2% following the comments, before paring losses. The index rose 0.1% Wednesday.

Kishida’s suggestion came in response to a question in parliament from an opposition lawmaker who said Japan could review its buyback rules or ban repurchases altogether in order to encourage companies to allocate more resources to wages — a favorite theme of the prime minister. Kishida added that caution would be needed in implementing any strict regulations.

The market dip had echoes of a tumble in the early days of Kishida’s leadership, when stocks fell on talk of increasing Japan’s capital gains taxes. That market pushback was enough to lead Kishida to defer the plan.

“When there was talk about the capital gains tax, shares fell and the plan was pushed back,” said Shogo Maekawa, a strategist at JP Morgan Asset Management in Tokyo. “It’s possible that they first say they’re going to review buybacks but then push it back again.”

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