TLDR:
- Japanese retail investors bought ¥10.4 trillion ($66 billion) of overseas stocks in 2024 through NISA accounts, marking the highest level since 2015
- NISA accounts have grown to 25 million as of September 2024, increasing 60% since 2020 after government expansion of the program
- The surge in overseas investment is putting downward pressure on the yen’s value
- US equities have gained more than double compared to Japanese stocks since NISA’s 2014 introduction
- Early 2025 shows continuing strong investment flows, with Mitsubishi UFJ funds seeing 66% higher inflows compared to last year
The Japanese government’s efforts to encourage individual investing are showing clear results, with retail investors purchasing ¥10.4 trillion ($66 billion) worth of overseas equities and funds in 2024.
This marks the highest level of foreign investment since 2015, driven by recent changes to the Nippon Individual Savings Account (NISA) system.
NISA, which operates similarly to the UK’s Individual Savings Accounts and the US’s Roth IRA, has seen rapid adoption among Japanese citizens. The number of accounts reached 25 million by September 2024, representing a 60% increase from the end of 2020.
The government’s 2024 overhaul of the NISA system has played a key role in this growth. Changes included removing limits on tax-free holding periods and increasing annual contribution limits, making the program more attractive to potential investors.
To promote awareness and participation, Japan’s Financial Services Agency created a mascot called Tsumitate Wanisa. The crocodile-themed character, whose tail represents growing asset values, aims to encourage Japanese citizens to invest more of their substantial savings, which exceed one quadrillion yen.
The timing of this investment surge coincides with important policy shifts at central banks. The Bank of Japan is expected to raise interest rates, while the Federal Reserve has indicated a slower pace of rate cuts. However, experts suggest these changes may not be enough to strengthen the yen due to the continuing wide gap between US and Japanese yields.
Nomura Securities Co. has calculated that approximately half of the dollar’s rise against the yen in 2024 can be attributed to increased investment in overseas securities through investment trusts.
While NISA accounts allow for domestic investment, Japanese investors have shown a clear preference for foreign markets. This trend is supported by data showing US equities have gained more than twice as much as Japanese stocks since NISA’s introduction in 2014.
Investment Flows
The start of 2025 has shown no signs of slowing investment flows. Mitsubishi UFJ Asset Management Co.’s eMAXIS Slim US and All-Country Equity Funds received ¥641 billion in the first ten business days of the year, showing a 66% increase compared to the same period in 2024.
These early 2025 numbers represent the highest investment levels since at least 2019, according to Bloomberg-compiled data, indicating sustained interest in foreign investment among Japanese retail investors.
JPMorgan strategists note that NISA has begun 2025 with strong momentum. They point out that more than half of Japanese household assets remain in yen cash, suggesting potential for continued outflows.
The preference for overseas investments through NISA accounts has contributed to recent currency movements. Earlier this month, these investment flows helped push the yen to its weakest level since July.
However, market analysts note that certain factors could affect this trend. Increased market volatility could reduce NISA investments in foreign markets. Additionally, if Japanese assets become more attractive due to higher yields or strong stock performance, pressure on the yen from these tax-free accounts might decrease.
Investment trusts catering to Japanese individuals have seen steady growth in overseas equity purchases since the government expanded NISA’s scope. This trend shows no immediate signs of reversal, though market conditions and policy changes could influence future flows.
The most recent data from Mitsubishi UFJ Asset Management Co. shows continued strong interest in their US and global equity funds, with investment levels reaching new highs in early 2025.
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