By Junko Fujita and Brigid Riley
TOKYO, November 30 (Reuters) – Japan’s big tax break to encourage its citizens to channel some of the trillions of yen held in cash into stock market investments and boost the economy is succeeding, but only partially.
Under Prime Minister Fumio Kishida, the Nippon Individual Savings Account (NISA) program — which frees retail investors from paying capital gains taxes on stock holdings — expanding significantly from January.
And yet, investments under the nine-year scheme has historically gone primarily into US stocks, and that Japanese affinity for US stocks could mean Nasdaq. .IXIC is NISA’s biggest winner.
Conversations with brokers and retail investors suggest Japan is having some success with NISA — households are channeling more savings into stocks and taking more risk.
But Kishida also hoped that wealth would be better distributed and household savings would be recycled through companies. That remains wishful thinking.
Foreign stocks dominate the popular investment product rankings at online Japanese brokerages, such as the Monex Group and SBI Securities.
Ideally, Japanese investors would invest in the domestic stock market, inspiring foreign investors to also buy Japanese stocks and in turn broaden Japan’s capital markets in what would be “a very happy scenario for the Kishida administration,” said Takashi Hiroki, chief strategist at Monex. .
“The goal of the Kishida administration is to increase domestic assets. At the end of the day, it’s good if Japanese domestic assets grow and increase.”
That they were investing abroad, however, was unfortunate for Japan’s capital markets, he said.
In an aging society, where retiring comfortably on a national pension seems increasingly uncertain, since 2014 NISA has been used by working residents and retirees hoping to grow their assets.
Japanese households hold more than 2.1 trillion yen ($14.16 trillion) in financial assets, yet their reluctance to take risk has meant they keep more than half of it in cash, far more than in other developed economies.
Kishida wants to change that way of thinking to create a new, sustainable form of capitalism in the world’s third largest economy. The prime minister has led government efforts to expand NISA, increasing the total each person can hold under the scheme to 18 million yen from 2024 and making it permanently tax-exempt.
With these changes, the government aims to double in about five years the investment balance of NISA’s 33 trillion yen at the end of June.
NASDAQ ABOVE NIKKEI
Interest in NISA has grown since the pandemic, as mom and pop investors and even younger Japanese have been awakened by social media to buy shares. The number of NISA accounts exceeds 19 million, not significant in a population of 123 million, but has grown 46% since 2019.
Analysts at JP Morgan expect NISA balances could increase by 45 trillion yen over five years if an average of three million accounts are added each year and purchase amounts increase.
“Nearly 60% of new money under the NISA framework is likely to go to foreign investment trusts, mainly for US stocks. The remaining 5-9 trillion yen will be allocated for Japanese stocks,” said Masanari Takada, quantitative and derivatives strategist at JP Morgan Securities. .
Monex estimates that the proportion of Japanese investors buying purely local stocks has fallen to 24% from about 40% over the past 10 years and NISA’s top 10 most popular investment packages on its website contain mostly US stocks.
Although investors of all ages are attracted to U.S. stocks, “young people tend to gravitate relatively more toward U.S. companies,” said Maho Tsugawa, manager of Monex’s public relations office.
“There is some discussion that stock prices don’t really go up in Japan, and so if you hold stocks for a long time to accumulate wealth through something like NISA, prices gradually go down and you end up losing.”
While Japan’s Nikkei Average .N225 had a stellar year with 28% gains, its 113% rise over the past decade pales against the US stock market’s 265% rally.
Analysts at BofA say Japanese investment trusts have been steadily buying foreign stocks since 2014 but not local stocks.
Such an investor bias would spoil one part of the vision Kishida has been promoting since he was elected in 2022.
“I think the Japanese government wants money to flow domestically and boost Japanese stocks,” said Naoki Fujiwara, senior fund manager at Shinkin Asset Management.
“But the government’s goal is to boost individual financial assets, and it doesn’t matter if that will be achieved by investing in Japanese or American stocks.”
Investment habits are changing.
Toyama, a 59-year-old investor who wants to go by his last name only, buys investment trusts and ETFs through NISA. Toyama hopes to become more aggressive.
“I already have investment trusts that track the S&P. I might start investing in individual stocks when the new NISA system starts next year,” he said.
($1 = 147.2600 yen)
Japanese investment trusts are buying foreign stocks
(Editing by Vidya Ranganathan and Kim Coghill)
((vidya.ranganathan@thomsonreuters.com; +65 6973 8261; Reuters Messaging: Twitter:@Vid_Ranganathan))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
