Topix Nears Seven-Year High on Japan Buybacks, Profit Forecasts

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Japanese stocks rose, led by insurers, as prospects for more buybacks and stronger-than-expected earnings boosted shares.

Dai-ichi Life Insurance Co. surged 11 percent after saying it will repurchase shares and net income will rise more than expected. Mitsubishi UFJ Financial Group Inc. was the biggest boost to the Topix index after profit reached a record and the bank announced a 100 billion yen ($837 million) share buyback. Sumitomo Electric Industries Ltd. jumped 7.6 percent as it projected a bigger-than-expected dividend. Takeda Pharmaceutical Co. dropped 2.6 percent after its profit forecast was below analyst estimates.

The Topix climbed 1.2 percent to 1,626.66 at the close in Tokyo, less than one point away from the highest in more than seven years, after gaining 1.2 percent last week. The Nikkei 225 Stock Average added 0.8 percent to 19,890.27.

“Usually companies are quite conservative with their earnings forecasts, but this time the guidance seems to be considerably more positive than usual,” said Kuninobu Takeuchi, Tokyo-based executive portfolio manager at DIAM Co. “With some 230 trillion yen slushing around on company balance sheets, giving some of that back to shareholders is being seen as favorable.”

Japanese corporates were sitting on 231 trillion yen at the end of December, according to Bank of Japan data. Dai-ichi and Mitsubishi UFJ join Toyota Motor Corp., Fanuc Corp. and a slew of other firms that have recently announced they will return cash to shareholders.

Share Buybacks

Insurers climbed the most among Topix’s 33 industry groups, all but one of which rose. Dai-ichi soared 11 percent after announcing it will spend as much as 15 billion yen to repurchase shares. The insurer also said it was targeting net income to grow to 161 billion yen this fiscal year, ahead of analyst estimates for 144.2 billion yen.

Mitsubishi UFJ climbed 4.6 percent to the highest close since October 2008 after net income in the year through March surpassed 1 trillion yen, a first for the company. The bank also said it would buy back 100 billion yen of shares.

“Companies are saying this year’s net income will climb by about 9 percent, which isn’t bad at all,” said Shoji Hirakawa, chief equity strategist at Okasan Securities Co. in Tokyo. “The market is getting a boost as firms are resolving to return more to shareholders.”

Higher Dividends

Sumitomo Electric jumped 7.6 percent, its highest close since December 2007, after forecasting it will pay an annual dividend of 35 yen per share in the current fiscal year, above analyst estimates for 28 yen per share. Mizuho Financial Group Inc. surged 4.7 percent, to close at its highest level since June 2009, after the lender said on Friday it too will boost this year’s dividend by 15 percent to 7.5 yen per share.

Takeda slumped 2.6 percent, the most in two months, after forecasting net income this year will be 68 billion yen, below analyst estimates for 116.6 billion yen. After the announcement, Morgan Stanley MUFG Securities Co. cut its rating on the stock to equalweight from overweight, citing higher-than-expected costs in the medium term.

A government report today showed Japanese machine orders rose 2.9 percent in March from a month earlier, beating estimates by economists for a 1.5 percent gain.

E-mini futures on the Standard & Poor’s 500 Index fell 0.1 percent after the underlying U.S. measure gained 0.1 percent to close at a record on Friday in New York.