Managing Your Money the Local Way: Introduction to Financial Investments in Japan

For foreigners looking to live and work in Japan in the long term, simply finding ways to save money on day-to-day life may not be sufficient to reach certain long-term financial goals. Putting money in a Japanese bank account certainly will not do much to help you grow your money. For instance, a Japan Post savings account, through which most foreign students get their scholarship payments, has an annual interest rate of only 0.001%.

So instead of letting their money sit in a regular savings account, foreign residents should consider actively managing money, so that their salaries can automatically increase in value over time, to prepare for retirement, big purchase, or simply a more uncertain future. Japan has some investment tools that have become relatively well-established in the past years. Considering that these are often also open to non-Japanese nationals, long-term foreign residents should consider looking into these options when considering where to park their money for the best returns. 

The following describes some of the more well-known and popular options. Unfortunately, many of these options require some level of Japanese language proficiency to set up. But plenty of explanations exist online in English and other languages so that you can figure out the details before you approach Japanese speakers for help.

1. Nippon Individual Savings Account (NISA)

Launched on 1 January 2014, NISA is a tax-saving scheme that allows all long-term residents in Japan (both Japanese and non-Japanese) to be exempt from taxes on dividends and capital gains from investing in exchange-traded funds (ETFs) and shares of listed companies. Those aged 20 years and above can open a NISA account with a securities trader or a bank to invest up to JPY 1.2 million per year every year for a maximum of a five-year tax-free period. From 2024, a new NISA scheme will see the program further increasing the yearly allowance to JPY 1.22 million, but with the first JPY 200,000 limited to investments in selected investment trusts and mutual funds.

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The scheme is designed for flexibility. At the end of the five-year tax period, NISA account holders can transfer some of the accumulated assets into a new NISA account for a new five-year tax exemption period and the remaining to regular investment accounts. Alternatively, NISA account holders can choose to convert their invested assets back to cash before the five years is over, with no penalty beyond that cash not being able to be reused for new investments in the same five-year period. While one person cannot have more than one NISA account at once, the scheme itself can be constantly rolled over every five years to ensure some constant level of tax savings on stock investments.

For those looking at an even longer period, in January 2018, the Japanese government introduced a new type of NISA called the Tsumitate (“accumulation”) NISA. Tsumitate NISA lets the account holder enjoy 20 years of tax exemption on their investments, provided that the investments are limited only to selected investment trusts and mutual funds. The new NISA scheme from 2024 will allow the first JPY 200,000 invested yearly in a regular NISA account to be rolled over to Tsumitate NISA upon the expiration of the five-year tax exemption period, providing new transferability between the two previously separate schemes.

2. Individual-type Defined Contribution Pension Plan (iDeCo)

For those thinking in durations even longer than that of Tsumitate NISA, combining their earnings from NISA accounts and various pension plans is recommended. Japan already has a mandatory national pension plan in which every resident between 20 and 59 is expected to contribute a fixed amount each month. But to encourage people to save for retirement beyond this “basic” pension plan, the Japanese government introduced iDeCo on 1 October 2001 as a separate, optional pension scheme.

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Applied through registered banks, securities firms, and other financial services providers, an iDeCo account requires the account holder to put a minimum of JPY 5,000 per month into a selection of investments from ETFs to listed shares to mutual funds. However, the scheme has an upper limit for monthly contributions (upwards of JPY 12,000 for workers enrolled in the national pension plan) and money can only be withdrawn from the account at the age of 60 tax-free. 

The iDeCo scheme is also designed with flexibility in mind. Account holders can adjust yearly when to temporarily halt their contributions, what financial products their contributions go to, and the amount of contribution to make. Such flexibility provides many foreigners, who may end up leaving Japan at some point in their careers, the ability to continue contributing to and then getting the money back from their iDeCo accounts after retirement.

3. Save on Transaction Fees with an Online Investment Account

As is the case with many other tech-savvy countries, financial technology firms are disrupting the world of securities trading and banking in Japan. While NISA and iDeCo are also advertised into traditional brick-and-mortar financial services providers, those looking to start investing are better off looking online for accounts that allow the widest varieties of investments at the lowest transaction costs. 

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Two of the most popular online securities firms in Japan are:

(1) SBI Securities

Good news! The biggest online securities firm in Japan is now handling both NISA and iDeCo. The firm also promises the cheapest transaction fees in Japan, with free trading up to JPY 1 million per day, less than JPY 1,000 for trades up to JPY 2 million per day, and only JPY 440 for every extra JPY 1 million in daily trades above. The firm also prides itself on its easy-to-use mobile app, ability to trade stocks in nine countries outside Japan, and asset management tool for subscribers.

(2) Rakuten Securities

For frequent online shoppers, the securities arm of the biggest Japanese e-commerce portal may be a better choice. While Rakuten Securities, like SBI, provide free trading up to JPY 1 million per day, it also allows users to both use and earn Rakuten Points for trading and sometimes even just holding money in their accounts. With even more Rakuten Points to be earned by connecting the securities account with Rakuten Bank and Card accounts, it is no wonder Rakuten Securities, with more than 6 million active accounts, is now threatening the market dominance of SBI, with its 7.7 million users. 

For those thinking about making financial investments for the first time, finding the most efficient methods can be hard, especially in a foreign country. Thankfully, Japan makes the process relatively easy, with the government and technology firms working to make the process as inexpensive as possible. With many options open to foreign residents, it makes sense to explore and dive in, even with minimal initial investments. 

Written by: Xiaochen Su, a Ph.D. candidate at the University of Tokyo and the Managing Director of the Study Abroad Research Institute, a non-profit organization seeking to promote study abroad in Japan.

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