(Bloomberg) -- The cost of a Tokyo bento lunchbox had nearly doubled before Nanami Eda noticed that her savings account wasn't growing nearly as quickly.
So, the 26-year-old consultant decided she'd put more of her funds into a new tax-free option that's historically been anathema to young Japanese: the stock market. “I'm excited about it,” she said.
For much of the world, higher costs have become just another part of life as demand grows, wages increase and supply chains get disrupted. But inflation rapidly jumping to the highest level in more than 40 years has come as a shock in Japan, where corporations have for decades avoided raising prices.
Increasingly, young people like Eda have had enough. Unlike older generations, which could park more than half of their assets in cash and deposits without losing buying power, they're seeking alternate ways to build wealth — or at least not lose ground.
It's a welcome change for Japanese authorities. For three decades, they've tried to encourage greater retail participation in the stock market and erase the scars of the “Lost Decade” after the 1980s asset bubble burst. Now, they are attempting their boldest plan yet: an overhaul of the $163 billion market for tax-exempt retirement savings accounts known as NISA.
Japan's financial services industry is feeling optimistic that the next wave of investing has finally arrived. “The roadmap from savings to asset building is finally starting to take shape,” said Hidefumi Sakamoto, managing executive officer at SBI Securities Co., one of the country's largest online securities firm.
If the wave catches on, Eda and her peers will do more than just save up for the bento boxes of the future. They will reverse decades of investing reticence, where squirreling away money was seen as a virtue. Equity prices will also get a boost from additional funds, encouraging others to jump into the market.
The hopes are all pinned on an uptick in NISAs. Formally known as Nippon Individual Savings Account, these are tax-advantaged savings accounts similar to the UK's Individual Savings Accounts or America's Roth IRA. Japan's version was introduced in 2014, but starting in January, they'll become a much more lucrative investment proposition: The government will scrap a limit on how long dividends and other capital gains can receive tax exemptions, lift annual contributions by as much as threefold, and double or more the lifetime contribution limit.
When Prime Minister Fumio Kishida came into office two years ago, he pledged to offer a “new capitalism” that would encourage Japan's population to move their money into the market to help stimulate growth. The policy led to an overhaul of the country's asset-management industry to create more competition as a solution to moving more dormant, household savings into actual investments.
It's not just the government trying to get people on board. Pontiyo, an online influencer in his 20s who declined to be named, has been promoting the new program to his more than 400,000 YouTube subscribers. The new program is attractive because it creates a personal pension of sorts, he told Bloomberg.
For market commentators the numbers confirm tangible change is already underway. The total number of NISA accounts increased by 1.1 million in the first six months of 2023, which is already more than 50% of 2022's total additions, according to the Japan Securities Dealers Association. The biggest addition were for people in their 30s. Inflows into the Tsumitate NISA – a version of the NISA that's more geared toward younger users preferring to invest smaller sums more regularly – rose about one-third during the same period. In total, there are 12.9 million NISA accounts as of June, according to the most recent data.
Japan's securities industry is also reporting some big increases. SBI Securities saw an 84% uptick in new NISA accounts per month between November 2022 around when the new overhaul details were released through the end of September. Rakuten Securities Inc., a competitor, saw Tsumitate NISA accounts touch 3 million in April. Both brokerages have announced plans to cut trading fees to zero to incentivize even more investors.
The excitement is bubbling to the top levels of corporate Japan. Japan's minimum allotment of shares is 100, making pricey stocks a high barrier to individuals who can't afford them. So firms are announcing stock splits at the fastest clip in at least five years as a way to make shares affordable. Nippon Telegraph & Telephone Corp. in July conducted a 25-for-1 split, allowing investors a minimum investment of about 16,000 yen ($107) vs more than 400,000 yen ($2,700) before the split.
On Thursday, Mitsubishi Corp. announced that it was conducting a 3-for-1 split as a way to broaden its shareholder base, though it did not specify whether it was driven by NISA.
Startups are making similar preparations. Woodstock.club created a trading app where individuals can put their money into the market for as little as 1,000 yen ($6.70) and share their portfolios in a dedicated forum. “Young people don't invest, they don't know how. It's intimidating,” said Brian Yun, a co-founder, who added that learning from others can help users “be in charge of building your own plan for your wealth.”
The government has launched other measures, including mandating financial literacy in all high schools. A cuddly crocodile mascot, the “Tsumitate Wa-NISA,” is now helping the Financial Services Agency promote the subject in schools.
Yet even with all these benefits, the process has been slow. Analysts say the original NISA program flamed out because it was too complicated and young people in Japan didn't have older relatives or parents to seek advice from, given perceptions of investing as gambling.
Skepticism runs deep. According to a survey conducted by Fidelity International at the end of July, about half of the 10,000 respondents said they were aware of the new NISA program but that they were concerned about how to invest, what to invest in and how it all works.
Though slow, analysts acknowledge that the trend appears to be sustainable this time around.
According to Sam Perry, a London-based fund manager at Pictet Asset Management who manages about 100 billion yen ($661 million), the inflation jump and more streamlined NISA policy will finally be enough to prompt individuals back into the market. “This is a massive change and a very, very different environment.”
(Updates with Mitsubishi announcement in 14th paragraph)
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