Japan’s game-changing investment programme
Abenomics has a new weapon to pry money from bank accounts
TOKYO: An outspoken regulator has unleashed an unusual tactic to shake up Japan’s asset-management industry.
Nobuchika Mori, the head of the Financial Services Agency (FSA), has publicly criticised the country’s money managers for what he sees as failing to offer products that suit their customers. In his eyes, that’s getting in the way of one of the key missions of Abenomics: to encourage Japanese people to move more of their US$8.4 trillion in cash and bank deposits into the stock market.
In an attempt to address this, Mori is starting a new tax-free investment programme for individuals who want to put a small amount of cash into equities and bonds each month for their retirement. Only cheap funds suited to long-term investment are eligible, which ruled out 99% of those available as of March. For one of the few money managers whose funds meet the strict criteria, the programme will be a game-changer.
“It’ll be a powerful bomb,” says Haruhiro Nakano, president of Saison Asset Management Co, a provider of low-cost mutual funds in Tokyo and advocate of longterm investing. “This one is at the megaton level.”
Financial institutions “have focused on collecting fees with little regard for customers’ interests,” Mori said in a speech at the Securities Analysts Association of Japan in April. “As a result, customers find it difficult to build up their assets through investment. Does a business model like this deserve to be preserved in our society?”
Eligible funds
There are signs Mori’s crusade is having an effect. About 120 funds in Japan are now eligible for the programme, up from about 50 out of more than 5,400 in March, the FSA said last month. Assets in funds paying monthly dividends, which Mori has singled out for failing to spur long-term investing, dropped to 32 trillion yen (US$285.9bil) in August from a peak of 43 trillion yen in May 2015.
Some of the biggest asset managers have started to develop suitable funds. Nissay Asset Management Corp plans to start some new funds that will be eligible for the new programme next January, while working to promote 12 existing funds that are likely to make the grade. Mitsubishi UFJ Kokusai Asset Management Co set up seven new funds in August designed for long-term asset building. Nomura Asset Management Co, which oversees US$435bil, says it’s considering responding to the programme.
Brute force
“The FSA is using brute force to change Japanese funds,” said Saison’s Nakano, whose firm managed US$1.5bil as of the end of March. By making almost all existing funds ineligible for the programme, the regulator is sending a message on how useless they are for long-term investing, he says.
Mori’s brainchild, named Installmenttype NISA, starts from Jan 1. It allows individuals to invest as much as 400,000 yen a year in domestic or foreign stock or bond funds for as long as 20 years without taxes on capital gains or dividends.
The funds must be approved by the FSA as cheap and suitable for long-term investing. They can’t be leveraged, offer monthly dividends or have a short trust period. They can’t charge a sales commission, and must