The Ultimate Guide to Investing in Japan
Postponed 2020 Tokyo Olympics and empty Olympic stadiums in Japan proved just how easy and quick things can take a turn. This statement isn’t far-flung from the truth when it comes to investing in Japan — or in any country, to be honest. You never know for sure when’s the next market crash or which stock will skyrocket overnight.
Fund managers argue that Japan’s investment market is unpredictable compared to its Western counterparts. The country’s relative economic stagnation isn’t helpful either. Between high inflation and low growth in Japan, foreigners and stock pickers might be wary of Japanese shares and look at investment opportunities somewhere else.
Still, there’s a huge opportunity for foreign investors to seek growth in Japan’s market. This article will walk you through the fastest way to open an account and invest in Japan. We’ll break down the brokerages, explain the differences between JPX and Western exchange, set up a good insight for your fund.
Disclaimer: We are not professional financial planners or licensed tax specialists. This information is for educational purposes only. Always consult a broker or a licensed financial specialist.
So why should you consider investing in Japan?
Japanese equities are performing at great valuation levels, and we can’t deny that it’s attractive.
There are several reasons Japanese stocks are compelling for international residents. In 2012, prime minister Shinzo Abe announced “Abenomics” to help boost Japan’s economy. The structural and financial reforms unveiled mean there is a foundation for growth.
It’s an attractive long-term opportunity
Japan is an uncontested leader when it comes to robotics and automation. Sales of industrial robots, for example, have soared six-fold within this decade, and Japan is dominating the market. While the current outlook might seem cloudy, Japanese corporations are expected to bring high return on equity (ROE) at a rate that rivals their Western competitors. Japanese equities are performing at great valuation levels, and we can’t deny that it’s attractive.
Good corporate governance and transparency
In recent years, we can see a growth in more progressive (not to mention globally-oriented) companies in Japan. Japanese corporations are known to have better corporate governance and transparency, too. Putting these two strong points together, investing in Japan effortlessly becomes an attractive step to long-term financial security.
Opening a Broker Account in Japan
Being qualified to open a broker account and knowing what account to open is the foremost important step in investing in Japan. Anyone can claim they have financial finesse, but not everyone has residential status in Japan — something that you actually need in order to open an account. A quick tip: you’ll need your passport or zairyu (residence) card.
Make sure you’re equipped with a few useful Japanese words. You’ll have a better chance to open your broker account at:
(1) SBI
(2) Rakuten Shoken
(3) Monex
(4) International broker
The first three are highly recommended because they welcome international investors in Japan to open a training account. On the other hand, major Japanese brokers like SMBC Nikko do not have a guideline for foreigners to open an account. You can gamble on your chances, but it’s always advisable to pick an investment company that caters to foreigners.
If you continue with your international broker or if you are a high-end customer in private banking, it is possible to maintain your foreign broker account. American Depository Receipts (ADRs) are another option for you to trade registered Japanese/foreign stocks if you desire to maintain an American broker.
Add deposit to your account
If you’re already in Japan, you’ve probably already set up a regular Japanese bank account (銀行口座). You can make a one-time deposit or link the account for weekly and monthly deposits. However, if you haven’t opened a bank account in Japan, you are better off to open one or stay with an international broker.
Rakuten also has its online bank, which has a lower barrier to open up an account for. Expect five business days or so to complete the deposit process.
And then here’s the fun part: start trading
So you have completed all the steps above — congratulations! You are now officially an investor in Japan. When it comes to what to buy — be it stocks, bonds, mutual funds or ETFs — everyone has their recipes.
A great solid stride for individuals to invest in Japan is to purchase shares in Japanese mutual funds. You have to keep in mind that investing from overseas creates a more temperament situation — your investments will be affected by the movements of the currency exchange rate.
We’ll get you equipped straight away so you don’t fall into any system gaps. Here are some differences between Japan and the international stock market.
Tokyo Stock Exchange Lunch Break
Most like you will trade at Tokyo Stock Exchange, the third-largest exchange by market cap. From 11:30 am – 12:30 pm, the market closes for a lunch break. This is common in Asia and a few middle eastern markets.
The trading volume is usually high when the market opens and closes. Unlike NYSE or NASDAQ, many markets have less liquidity and higher spread. A shorter trading hour may secure the financial market more.
Account Access
The popular account has better access to a certain fund and government treasury.
Code for Ticker
In Tokyo Stock Exchange, the stock symbol is not as characteristic as the American one. Like 3M is MMM. It is only going to be a bunch of numbers, and you should get used to those.
Information for Fund Accounts
In Japan, many people use funds (either fixed return or passive investing) rather than the aggressive alpha strategy. Many accounts were built for extra retirement plans or child education annuities.
While passively managed funds have lower fees, it might be hard for you or your fund managers to maneuver the best opportunities in Japan. After all, a lot of Japanese indexes funds and major stock indexes are still predominantly filled with slow-growing (but sure) powerful organizations.
iDeco
iDeco is one of the most adapted investment accounts because of its tax advantage. The downside is that your account will be locked until you reach 60 years old. However, people like it due to the contributions are tax-free, and the capital gains are tax-free for a limited time as well.
NISA
NISA is another popular investment account with tax advantages. It’s very similar to iDeco, but you don’t have to wait until you are 60 years old. Each individual can only be qualified for one account. The downside is that you pay contribution tax as well as a bit of other tax at the nitty-gritty part.
Regular NISA
As of 2021, the ordinary NISA allows people to buy 1.2 million JPY per year, for 5 years. However, from 2024 to 2028 a new NISA is planned to run with purchase with a higher than before. If you are interested, you can find more about NISA here.
For people under 20 years old, the Junior NISA allows 0.8 million yen to be purchased every year. Tsumitate NISA has a lesser amount of 0.4 million yen, but it does last for 20 years.