Differences between investing in USA and Japan

[MBK]

I have started my investing journey this year and went heavy on NISAs opening an account for me, my wife and two of my kids as well as iDeco.

I`m a beginner when it comes to investing so I do try to read up on it via books and this forum was definitely very instrumental on smoothly getting the accounts opened and running.

Most of the books I read are by American authors so their references are to that investment environment. Naturally, the principles of the long term and value investing apply here in Japan, but I was just wondering what are some differences between investing environments between Japan and USA, to keep on mind when reading these materials.

A few I came across are:

1.) Stock purchase in a unit of 100s - the entry to stock purchase in USA seem to be much lower with a purchase possible from 1 stock. Here in Japan, purchases are in units of 100s (actually curious what is the reasoning behind it, if anyone knows)
2.) Capital Gains - many of the books caution against short term investments due to besides obvious risks also higher capital gains with short-term. Japan seems to be flat on capital gains no matter what the period.
3.) D.R.I.P. - this is actually a question, but I often see D.R.I.P. method of reinvesting dividends from stocks into stock purchase. I do have my eMaxi`s set with reinvesting dividends, but how about individual stocks? Is it possible to set up D.R.I.P. method for individual stocks too?

Are there any other things which are unique, or different, for Japan, compared to USA investing?

[TokyoBoglehead]

I have started my investing journey this year and went heavy on NISAs opening an account for me, my wife and two of my kids as well as iDeco.

I`m a beginner when it comes to investing so I do try to read up on it via books and this forum was definitely very instrumental on smoothly getting the accounts opened and running.

Most of the books I read are by American authors so their references are to that investment environment. Naturally, the principles of the long term and value investing apply here in Japan, but I was just wondering what are some differences between investing environments between Japan and USA, to keep on mind when reading these materials.

A few I came across are:

1.) Stock purchase in a unit of 100s - the entry to stock purchase in USA seem to be much lower with a purchase possible from 1 stock. Here in Japan, purchases are in units of 100s (actually curious what is the reasoning behind it, if anyone knows)
2.) Capital Gains - many of the books caution against short term investments due to besides obvious risks also higher capital gains with short-term. Japan seems to be flat on capital gains no matter what the period.
3.) D.R.I.P. - this is actually a question, but I often see D.R.I.P. method of reinvesting dividends from stocks into stock purchase. I do have my eMaxi`s set with reinvesting dividends, but how about individual stocks? Is it possible to set up D.R.I.P. method for individual stocks too?

Are there any other things which are unique, or different, for Japan, compared to USA investing?

1. Not a big deal, as most investors should not overweight the Japanese stock market regardless of their nationality or location. However, you can buy units of a single stock with Moenx/SBI etc.

A common explanation for the 100 lot rule, is Yakuza would buy 1 share, turn up at shareholder meetings and cause a rocus until they were paid to leave (anecdotal).

2/3 Capital gains do mater. Most of us on RetireJapan like to use Japanese trusts the reinvest their dividends internally, thus no capital gains until you sell. These products are not availabe in the US, and ETFs do not have this function in America or Japan.

DRIP - Monex has DRIP for Us stocks.

..............

My 2.

#1 In Japan many mutual funds and trusts are much better than ETFs. In America mutual funds have more disadvantages.

#2 American investing advice often involves treasuries/government bonds. We do not have access to that risk free yield here. Domestic bonds pay nothing, and you need to take on currency risk to buy foreign bonds.

[Tkydon]

2.) Capital Gains - many of the books caution against short term investments due to besides obvious risks also higher capital gains with short-term. Japan seems to be flat on capital gains no matter what the period.
3.) D.R.I.P. - this is actually a question, but I often see D.R.I.P. method of reinvesting dividends from stocks into stock purchase. I do have my eMaxi`s set with reinvesting dividends, but how about individual stocks? Is it possible to set up D.R.I.P. method for individual stocks too?

2. In Japan , there is no such thing as Short-Term vs Long-Term Capital Gains for stocks. Capital Gains Tax is 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes) regardless of length of time of ownership of the asset, and you must use the Separate Taxation Method.

3. Dividends are subject to Dividend Taxes. For Dividends, you can choose to use the Separate Taxation Method applying the same Tax Rates as for Capital Gains Taxes above, or the Aggregate Tax Method.
You would benefit from a lower Tax Rate under the Aggregate Tax Method if:
a) you receive Japanese Dividends on Japanese Stocks and your total taxable income in the year is less than about Y6.6M due to the Dividend Tax Credit
b) you receive Foreign Dividends on Foreign Stocks and your total taxable income in the year is less than about Y3.3M. You cannot apply the Dividend Tax Credit to Foreign Dividends.
(exact thresholds will depend on actual distribution of Dividend Income vs Other Income.)

Foreign Dividends will be subject to Taxation in the Country of Origin under the Tax Treaty between that country and Japan, with a Foreign Tax Credit in Japan to eliminate (or reduce) double taxation, so the Total under the Separate Taxation Method still would be 20.315% (X% Foreign Tax, 15-X% National, 0.315% Reconstruction, and 5% Residents' Taxes).

Therefore, it is better if the iDECO, NISA, Mutual Fund or Stock reinvests internally rather than paying out a dividend distribution which would be subject to 20% tax before being reinvested.


Whether D.R.I.P. is available on individual stocks will depend on your Broker and the Stock in question.