July 16 (Bloomberg) -- Eight months into the biggest equity rally in three decades, Japanese executives are gaining faith in the nation's recovery as they reward shareholders with stock buybacks and pledge to increase capital spending.

Topix companies bought 1.78 trillion yen ($17.8 billion) of their own shares in the half ended June 30, the most since 2005, according to data compiled by Bloomberg. With companies from Orix Corp. to Toyota Motor Corp. to Nissin Foods Holdings Ltd.
holding a record 115 trillion yen, plans for capital projects are rising at the fastest rate in seven years.

While investors realized last November that Japan's economy was starting to rebound, sending the Topix up 66 percent, corporate leaders have been slower to respond to Prime Minister Shinzo Abe's spending and reform policies. It was only in June that optimists among large manufacturers outnumbered pessimists for the first time in two years, according to Japan's quarterly Tankan index. Bears say companies are only dumping cash because inflationary policies will erode their savings.

"Abe is helping to change the trend of how companies spend their money," Taku Arai, Japanese equities investment manager at Schroder Investment Management (Japan) Ltd., whose British parent overseas 236.5 billion pounds ($357.2 billion), said in an interview in Tokyo. "Japan's managerial ranks are starting to think more about shareholder returns."

Japanese stocks advanced last week, with the Topix Index of 1,711 companies adding 1.1 percent to 1,201.99, as exporters rose amid optimism a weakening yen will boost overseas earnings.

Even after sliding 5.8 percent from its 2013 peak on May 22, the measure is still the best-performing major equity benchmark in the world, having risen 40 percent this year.

David Fuller's view So far… so good. I would continue to give Japan's stock market recovery the benefit of the doubt, at least until we see evidence that it is waning.