Is Japan Inc ready to spend its cache of cash?

Leslie Shaffer | Writer for
Is Japan Inc looking at a shift into stocks?

Japan stocks have disappointed this year, but some portfolio managers are betting companies will finally start putting the piles of cash on their balance sheets to work for shareholders.

"The managers [of Japanese companies] were able to accumulate tons of cash sitting on their balance sheet generating zero returns without any idea of returns for shareholders," Peter Boardman, managing director at Tradewinds, told CNBC.

Over $2 trillion worth of cash is estimated to be sitting on Japan Inc. balance sheets.

"Now you're starting to see -- and this is part of the Abenomics third arrow – [companies] actually use that cash," he said, adding investors are starting to put "peer pressure" on companies to redeploy the cash.

Read More Is the Nikkei's rise just beginning?

Abenomics – a series of policy measures unveiled under Prime Minister Shinzo Abe to jump start the economy – has been described as a series of "arrows," with the "first arrow" aggressive easing from the Bank of Japan, which weakened the yen. It was followed by a "second arrow" of ambitious government spending, although the "third arrow" of structural reforms has proved difficult for the government to implement.

Boardman expects insurers -- including his stock pick MS&AD, one of the world's largest insurers -- will be among companies redeploying cash.

Japanese yen
John Phillips | Digital Editor for

Read MoreDeflation in Japan may finally be 'dead'

"They're going to be buying foreign equities and specifically and it should be very positive for the stock market," he said. "If you think about returns, if you're just getting 0.4 percent yield on your JGBs (Japan government bonds) but a company like NTT, for example, which is generating 6 percent return for investors, why wouldn't they do that?"

To be sure, investors of all stripes don't always make rational choices about seeking the highest returns, and despite a lot of talk, it isn't clear whether Japan Inc. has actually started shuffling its cash.

Indeed, betting on a rotation out of JGBs has been a "widow-maker" trade for a decade as low interest rates kept money parked there.

Read More Betting on social change in Japan

"I don't see signs corporate Japan is selling JGBs and buying stocks," Mark Hibbs, portfolio manager at Adamas Asset Management, said, noting that in fact many companies are selling their cross-shareholdings.

Hibbs doesn't expect a shift into riskier assets to come easily. "Memories are long in Japan. It's essentially been a bear market for 24 years," he said.

He added that insurers need to match their liabilities for as long as 30 years and aren't likely to abandon the bond market, although they may look at foreign bonds for higher returns.

But Hibbs did note that some trust banks appear to be front-running expectations the Government Pension Investment Fund (GPIF), which has more than 130 trillion yen ($1.27 trillion), will begin allocating more funds to riskier assets, including domestic stocks.

What is driving the Nikkei's rally?

Read MoreJapan's sales-tax hike turns shoppers away

There are some doubts about whether the GPIF's portfolio migration will provide any further boost to the stock market.

"That's something that actually may take a long time to occur -- somewhere in the region of two to three years for them to change their allocation away from JGBs toward equities," Hamish Pepper, a foreign-exchange strategist at Barclays, told CNBC.

Because the change has been well-flagged, it's likely also already priced into the market, Pepper added.

However, others do see signs risk-taking is picking up.

"With deflation ebbing, the labor market tight and corporate profits having recovered, behavior is becoming manifestly more proactive and risk-seeking across the board," James Malcolm, a strategist at Deutsche Bank, said in a note Tuesday.

Read More That didn't take long: Japan eyes stimulus exit

"This can be seen in consumption and capex data, M&A announcements and a new focus on ROE (return on equity) spurring buybacks and higher dividend payouts. It's increasingly evident in our discussions with local investors. And now it's starting to show up in the data," he said. He noted trust banks bought almost 700 trillion yen worth of domestic stocks last month, with the GPIF allocation changes likely to be announced in August.

In addition, Malcolm noted Japan Post, which manages 200 trillion yen in savings deposits and 85 trillion yen in life insurance premiums, will be partially privatized next year.

"It's no great stretch to imagine its asset management approach changing accordingly," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1