Nomura has a memorable label for the current market: the “Era of Disappearing Shares.” As Japanese companies dismantle old cross-shareholdings, other companies are buying back and retiring stock, so the tradable pie shrinks even while governance improves. Share repurchases have surged and, by Nomura’s count, stayed elevated through FY2025, helping to support prices even as additional supply comes to market.
On the surface, it looks like an elegant solution. Examining a particular segment of the market illustrates this dynamic. Japan’s non-life insurers, the biggest holders of relationship stakes, were told by their industry body to set deadlines to cut cross-shareholdings to zero and are actively selling. Meanwhile, boards under the TSE’s cost-of-capital push are using buybacks to recycle that supply. Cross-holding ties fade and shares “disappear”. Theoretically, remaining investors own a bigger slice of future cash flows.
However, the way that buybacks are executed determines who benefits. A large part of repurchases that absorb relationship blocks are done off-auction through the TSE’s ToSTNeT-3 facility: the company is the only buyer, trades occur at a set time and price, and allocation follows exchange rules. It’s tidy and minimizes market noise, but only the sellers who show up in that window receive cash. Non-selling minorities benefit indirectly (fewer shares outstanding) rather than through equal access to liquidity. By contrast, an open self-tender invites all shareholders to tender at a stated price over a set period, spreading the immediate benefit more evenly.
Recent moves illustrate the trade-offs. Toyota Group transactions have leaned on tender offers and clearly signposted buybacks—structures that any holder can choose to join—while other blue-chips have used off-auction purchases to quietly absorb insurer/bank sell-downs. The destination is similar (fewer cross-held shares in the system), but the distribution of benefits can differ markedly depending on the route.
Investors should be aware of the dynamics of buybacks and request companies to execute buybacks that keep the “disappearing shares” story aligned with everyone’s interests.
Valuation is the most important metric to watch. Buybacks are genuinely accretive when the stock trades below a conservative view of intrinsic value. In that case, retiring shares lifts each remaining share’s economic claim, even if you don’t sell. If the price is full or frothy, repurchases can merely shift value toward the block seller and provide liquidity selectively without improving value for continuing holders.
The structure and mechanics of any buyback are also important. If the aim is to soak up a large relationship block, an open, widely accessible tender or a combination of block plus pro-rata tender spreads liquidity fairly. If the company instead uses ToSTNeT-3 to buy from one seller only, investors really need to question if the benefit is real for all shareholders, and if the buyback is really the best use of funds.
Japan’s disappearing-shares dynamic is powerful, and it can serve all shareholders, but only when valuation and structure make sense. All shareholders should push for buybacks that are clearly cheap and clearly fair; otherwise, argue for cash uses (such as capex, focused M&A, or simply higher ordinary dividends) that help everyone until the numbers make the repurchase case undeniable.
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