The expansion forms part of Kishida’s new brand of capitalism based on initiatives that benefit Japanese citizens while promoting robust domestic economic growth.
This includes a “doubling asset-based income plan” designed to move more savings (including cash on deposit and physical cash) into financial assets.
Nisas are key to this, with the government expecting January’s changes to double both the number of accounts and total tax-free investment in five years. If January’s figures are anything to go by, then Kishida could be on to something:
- Japan-listed open-ended funds recorded ￥1.3tn of net inflows – more than four times higher than the previous month’s figure and the greatest amount since December 2021;
- stocks purchased by retail investors through Nisas hit a record ￥464.9bn; and
- new Nisa openings jumped by 900,000 on the previous month.
Japanese citizens may already be investing more, but what is likely to take longer to emerge is the full benefit of this increased investment to the domestic economy.
Make no mistake, January’s figures do point to an increase in investment in Japan-listed stocks. Japanese equity fund inflows doubled over the month to ￥130bn, according to Morningstar.
Mizuho Securities also estimates that the new Nisas will increase annual flows into Japanese stocks to ￥1.6tn from ￥1.3tn.
However, at least for now, Nisa holders appear to be favouring international stocks when it comes to what they are actually investing in.
Morningstar’s figures suggest ￥1.2tn flowed into Japan-listed global equity funds in January – several times the total invested in domestic products.
The divergence is, in our view, both expected and surmountable.
Scepticism among Japanese citizens when it comes to investing in the homeland has most likely arisen from decades of deflationary pressures and low economic growth. This, combined with an ageing population, long led Japanese equities to underperform their developed market counterparts.
Similarly, the historic perception that Japanese stocks are not run primarily for the benefit of shareholders continues among many.
Such factors are likely to be responsible for a gradual decline in the percentage of the Japanese stock market owned by Japanese individuals from 40 per cent in the 1970s to just under 20 per cent today.
The good news for Japan is current conditions appear to be overcoming negative preconceptions among Japan’s growing investor population towards domestic stocks.
Domestic tailwinds
One reason for these changing attitudes is inflation.
Deflation was a weight on the Japan’s economy and stock market for some 25 years. But as at the time of writing, inflation had either matched or exceeded Bank of Japan targets for 22 months straight.
Jumping out of a deflationary mindset after such a long period is no overnight change. However, with interest rate rises now on the cards after decades of ultra-loose policy, the new era of rising prices is becoming increasingly normalised.
