In Japan, the lottery is out and investing is in
Yosuke Nii, a 29-year-old computer programmer, sees nothing cool about playing the lottery.
He’s not alone. Japanese are increasingly shunning lotteries and opting for a more rational path to wealth: investment. They see lucrative opportunities across Asia, not to mention far better odds of hitting the jackpot.
According to Nii, buying something that promises profit but will almost certainly lead to negative returns is proof you are a jojaku — a loser in the information age. That goes for lottery tickets as well as other forms of gambling. He used to enjoy betting on activities such as horse racing, but not anymore.
“I would rather invest in myself and learn skills to make money and make myself rich,” he said.
Lottery sales for the fiscal year ended March 31 were down 23% from their peak in 2005, according to the Internal Affairs Ministry. The total — ¥845.2 billion (US$7.7 billion) — fell below the ¥900-billion mark for the first time since 1998.
Meanwhile, the number of investors in Japan rose by 2.7 million in the five years through 2016, to 23.5 million. The increase came despite the fact that individual investors, the vast majority of whom are 60 or older, were net sellers of shares over the same period.
This is exactly what Prime Minister Shinzo Abe was hoping for in 2014 when he introduced the Nippon Individual Savings Account programme, or Nisa. The tax-exempt, long-term investment accounts are modelled on Britain’s Individual Savings Accounts, and are the government’s way of nudging households to stop hoarding and start investing.
Much is at stake. Tokyo aspires to be a top global financial hub, and reviving the capital markets is seen as an essential first step.
“Japan at the moment just doesn’t have the culture for it,” said Nicholas Smith, Japan strategist at the Hong Kong-based brokerage CLSA. “If you look at Japanese pension funds, they are overwhelmingly in bonds, in the market where 60% of the government bonds have negative yields.
“The idea of changing that way of thinking, to suddenly be able to announce plans for Tokyo to be a major financial centre, seems kind of laughable to me.”
The majority of households’ ¥1,809 trillion in assets sit idle in cash and deposits, according to the Bank of Japan. Risky assets, including investment trusts and mutual funds, account for just 17%, compared with 52.4% in the United States.
The Boston-based research company Cerulli Associates says Japanese investors are on the conservative side, with only 6.3% having risk profiles that fall into the active/aggressive segment. That is well shy of the 8.3% ratio for Chinese and 12.7% for Indians.
The Japanese preference for a conservative approach stems from “living in an economy that has been in the doldrums for decades”, Cerulli said.
Younger generations, t hough, are increasingly inclined to take the plunge.
SBI Securities, the country’s largest online broker and a SoftBank affiliate, says its client base expanded by 62% over the past five years to reach 3.92 million as of June. This makes it the country’s second-ranked brokerage, and newcomers to the market have a lot to do with its growth: SBI says 80% of its new clients had no prior experience in stocks and are mainly in their 30s and 40s, or younger.
One tool SBI uses to attract millennials is its “robo advisory” — an automated wealth management service that helps users build diversified global portfolios at relatively low cost. In the past year, it has teamed up with Money Design and Wealthnavi — two pioneers of robo-advisory services in Japan. The results have been encouraging, according to the brokerage.
Money Design’s assets under management have topped ¥10 billion since its launch in 2014. Wealthnavi cleared the ¥15-billion mark in less than a year. Admittedly, these amounts are still small, relative to similar services in the US: New York-based Betterment manages $10 billion, while California-based Wealthfront handles $5 billion.
At Money Design, 51% of customers are in their 20s and 30s, with 47% reporting little or no investing experience. So why are young Japanese gravitating to the markets now?
“Our government seems up to its neck financially,” Nii said. “I don’t think I can count on it for my retirement.”
By contrast, Nii added, Asian countries like Indonesia and India look promising, with their young and growing populations. “Countries with younger populations will be more dynamic, because young people spend and innovate more,” he said.
Services such as Money Design are tapping into such sentiments.
“Japan is getting relatively poorer because its growth has stayed behind the rest of the world’s,” said Money Design chief executive Jin Nakamura. “We design portfolios without any home bias. They yield returns so long as the world economy grows, irrespective of how Japan’s economy performs.”
Still, despite the growing interest among millennials, the fact remains: Japan is aging, and older people are more focused on avoiding losses than racking up gains.
A 2015 survey by the Japan Securities Dealers Association found that 56% of individual investors belonged to the 60-plus set. Investors in their 20s and 30s accounted for only 8%.
Compounding the issue, many veteran investors have become conditioned to taking profits on even the smallest market rally — a natural tendency, perhaps, after years of plodding through slumps.
There are, at least, some signs of a change in attitude.
A survey by Mitsubishi Asset Brains, an investment rating company, found that long-term investment trusts now make up 23% of publicly offered trusts. The highest ratio in 10 years suggests Japanese are becoming more comfortable holding stocks for the long haul.
Even so, industry insiders are bracing for a hard slog. “We do not think we, alone, can bring about change,” Money Design’s Nakamura said.
Changing Japan’s investment culture, he said, will require the involvement of banks, brokers and the government. And they will need to use all the tools at their disposal — from the Nisa programme to individual pension plans.