Japanese government rides to stocks' rescue

New savings accounts will let people invest up to $10,100 a year for 5 years with total exemption from taxes on capital gains and dividends.

By Jim J. Jubak Oct 1, 2013 2:09PM
Image: Asakusa Kannon Temple in Japan © GlowImages, Getty ImagesFor the next two weeks, the battle over shutting down the U.S. government and raising the debt ceiling is likely to keep downward pressure on the U.S. dollar. And that's likely to mean a stronger yen, since the Japanese currency once again looks like a favorite safe haven. 

A stronger yen is bad news for Tokyo stock prices, by and large, since Prime Minister Shinzo Abe's program for stimulating growth (and inflation) in Japan hinges on a cheaper yen to boost Japanese exports. 

Tuesday, for example, the Nikkei 225 stock index dropped 2.06% with such exporters as Hitachi (down 2.71%), Kubota (down 3.28%), and Toyota Motor (down 2.64%) leading the retreat.

But before you thrown in the towel on your Japanese positions -- assuming that you've gotten over the habit of ignoring Japan's equity market ingrained during the country's lost decades -- I'd note that the Japanese government is riding to the rescue of Japanese stocks beginning Wednesday. That effort makes the current weakness a potential buying opportunity rather than a moment to run for the hills.

On Oct. 1, the government begins the Nippon Individual Savings Accounts, which will allow individuals to invest up to $10,100 a year for five years with total exemption from taxes on capital gains and dividends. 

Japanese households held $8.5 trillion in deposits as of March, the most ever, the Bank of Japan reported. Stocks made up just 8% of the total (in the U.S. it’s 34%) with bank accounts paying as little as 0.02%.

The program has two goals. First, if Japan’s rapidly aging (and shrinking) population is to have any hope of paying its way in retirement, retirement savings have to earn more than 0.02%. Second, the government is scheduled to raise the capital gains tax rate to 20% from 10% in January and it hopes the new tax break will minimize the damage to Japanese equities in 2014. 

Nomura Securities estimates that the new program, set to run through 2023, could shift as much as $660 billion from savings accounts into equities.

Stock investing is such unexplored territory for most domestic Japanese investors that it's hard for me to say where this money might flow. (It can't flow into bonds, which aren’t eligible for this tax break.) 

Considering the conservative nature of Japanese savers, I think it's reasonable to conclude that a good percentage will flow into shares of brand name Japanese exporters such as Toyota Motor (TM) and I'd certainly think about picking up shares of companies like that on weakness -- especially if they've shown good returns in the rally in Japanese stocks that began in November 2012. Toyota Motor is up 65.1% in the last 12 months. (Toyota Motor is a member of my Jubak's Picks portfolio.)

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund may or may not own positions in any stock mentioned. The fund did own shares of Toyota Motor as of the end of June. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here

Tags: JapanTM
Oct 2, 2013 7:18AM
The Japanese aren't so much conservative as they are just smarter than the average BEAR. They still, unlike most Americans, realize you can literally lose everything by placing your FATE in manipulated Stocks Markets. Until the Global Elitists realize that forcing folks into Stocks won't avert a Global Meltdown, the march to Epic Fail continues.
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