Buying Japanese Equities

When in Rome…

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Japan has the second-largest stock market in the world, after the USA. It makes up around 9% of the world market.

We wrote a post about buying stocks in Japan earlier in the year. This post is going to build on that one and go a little deeper into buying Japanese equities.

For people in Japan, it may make sense to own the local market. Some people may even choose to be overweight. Bear in mind that if you buy a world index fund in Japan, it will probably not include any Japanese assets.

For most people the best option is probably index funds. Recently in Japan mutual funds (投資信託 –toushi shintaku) have become extremely customer friendly. Companies have rushed into the sector and competition has driven costs very low indeed.

You can buy mutual funds in iDeCo, NISA, Tsumitate NISA, and ordinary investing accounts. When looking for funds search for ‘no load’ and then look for low annual fees (you can usually sort by 手数料 and choose one of the cheapest ones). Some current standouts include the eMaxis Slim series of funds, but new funds are coming out all the time so it is worth looking around from time to time.

You can also buy individual companies. This seems to be one of the only options for Americans in Japan. According to this article (in Japanese), from this week domestic equities can only be bought and sold in lots of 100 (this was already the case for most stocks, but there were some exceptions). With cheaper stocks this is not too bad, but some of the expensive ones basically become impossible to buy (for example, Nintendo stock is over 40,000 yen now, so to buy any you would need at least four million yen).

Having your portfolio concentrated in just a few stocks exposes you to quite a bit of risk. If you don’t have hundreds of millions of yen to invest, a better solution might be to buy an index fund.

There are broadly speaking two types of Japanese equity index funds: ones that track the Nikkei 225 and ones that track the TOPIX. The Nikkei 225 is a list of 225 blue-chip companies listed on the Tokyo Stock Exchange. The TOPIX is a lits of just under 1700 companies also listed on the TSE. Generally speaking the TOPIX gives better exposure to the Japanese economy as a whole.

You could also combine the two approaches, ie buy a couple of individual stocks you like the look of, and combine them with some mutual funds tracking the TOPIX (or the Nikkei 225, but the TOPIX seems preferable to me).

​How about you? Are you buying Japanese equities in your portfolio? Any questions?

15 Responses

  1. Might want to check your spelling in the 6th paragraph … I don’t think Nintando stock are 40,000 a stock … Nintendo maybe.

    1. Ha, ha, good spot! Thanks 🙂
      (have to look into registering ‘Nintando’ and seeing if distracted people buy it by accident)

  2. bought individual stocks in 2007 on the Nikkei; Panasonic, Sharp, Pioneer, NTT and am still down about 40% today on my portfolio…should have bought index funds at the time as you recommend

  3. Good discussion. My experience with actively managed Japanese mutual funds (some unfortunate experience going back to 1990) is that they are managed very poorly, especially when they come from the large Japanese brokerages. I did have great experience with an Amundi Nikkei 225 index fund until the US FPIC reporting rules became impossible. For individual stocks, 100 shares is not necessarily the base unit for all companies. Some have units of 1000 and some of 10, etc. Several brokerages (e.g. Nomura) offer “mini” share allotments so you can get just 10 shares of a stock like Nintendo, which I believe are settled at the closing price of the day. You don’t get the “kabunushi yutai” when you have that kind of position but do receive dividends. Brokerages also now sometimes allow automatic reinvestment of dividends here.

    1. Thanks for the comment and background 🙂
      Are you sure that article I linked to is wrong about the lot size being standardised at 100 from October 1st 2018? Do Nomura still do the ‘mini’ option?

      1. I stand corrected! I checked again and confirmed that as you wrote they are now all at 100 単元. You can however trade less than that. For Nomura it’s called a “まめ株” order. I have a number of positions which include shares that don’t add up to the 単元 unit both because some companies (e.g. Nomura Research) have paid stock dividends and because part of my yearly bonus is in company stock.

      2. Phew!
        I’ll have to look into this まめ株 thing -might be a good option for people with their heart set on expensive shares…

      3. Woow, thanks for the info!
        It seems that on SBI we can even put these “mini” stocks in NISA!
        I think I’ll try some with my yearly contribution next year to invest more in dividend stocks!! It seems it also works on foreign stocks!

      4. I opened a secondary SBI account simply because I thought Rakuten wouldn’t let me buy odd lots. They have other help pages that say it’s impossible.

  4. One other comment about investing in Topix vs Nikkei 225 index funds. Keep in mind that the Nikkei is price-weighted (like the Dow) while the Topix is capitalization-weighted (like S&P 500) so the higher priced stocks in the Nikkei (like Fast Retailing) have an outsized influence on its price movements.

    1. The same point is worth making about sector ETFs. For banks in particular, the fact that they’re cap-weighted means you’re essentially buying the megabanks (with a particularly high weighting for MUFG, last time I looked) and a very small amount of everything else, down to the very minor regional players. Before you think “Sector X will be a beneficiary of Trend A so I’m going to buy a Sector X ETF,” you need to lift the lid and check what you’re buying.
      Another caveat regarding thematic investment trusts – I’ve seen a number of these that have invested exclusively in small and mid-caps, generated very strong performance, and ceased accepting new investments because they’ve essentially bought up all the available supply. I suspect these have ridden the end-of-cycle shift to small-cap bargain-hunting and also to an extent the self-fulfilling prophecy that buying illiquid small-caps in quantity will move the price. I think anything that proclaims itself to be about female empowerment or other ESG/Abenomics themes needs its tires thoroughly kicked.