Japan NISA Insights – January 2024

By January 2024, financial markets in the majority of industrially advanced nations experienced a significant uptick, predominantly driven by the expectation of forthcoming interest rate cuts within the year, despite central banks signaling that an immediate shift towards easier monetary policy was unlikely to occur.

Market Performance Highlights

The month saw a robust rally in most developed markets, with standout performances observed in Japan. The Nikkei 225 Index and TOPIX Index experienced significant gains, recording +8.43% and +7.81% (local prices) respectively. On the flip side, Hong Kong’s Hang Seng HSCEI Index and HSI Index faced considerable declines, down -9.96% and -9.16% (local prices) respectively. Additionally, the Australian Dollar (AUD) depreciated by -3.71% against the USD, impacting AUD returns for Trends and indices.

Japanese Retail Investors’ Impact

Japanese retail investors played a crucial role in the market dynamics during January. Notably, the Nippon Individual Savings Account (NISA) program underwent an overhaul earlier in the month, leading to a surge in stock purchases. Data collected from leading online brokerages revealed that purchases through tax-exempt NISA accounts totalled 464.9 billion yen ($3.1 billion) in the two weeks through Jan. 19. This figure, which includes purchases of exchange-traded funds and real estate investment trusts, is nearly triple the monthly record from March 2020.

Updated NISA Program

Launched in 2014 to encourage Japanese h:ouseholds to invest, the updated NISA program now consists of “growth” accounts for individual stocks and “tsumitate” accounts for regular monthly investments in mutual funds. The annual investment limit for growth accounts was doubled to 2.4 million yen, and the accounts were made permanently tax-free. Japan Tobacco emerged as the most-purchased stock via NISA accounts, drawing significant interest with a dividend yield of 4.9%.

Global Enthusiasm for Stocks

The surge in Japanese retail investor activity is not limited to domestic assets. Applications to open new NISA accounts have doubled from a year earlier, with investors, especially those in their 20s and 30s, showing enthusiasm for overseas assets. Mutual funds investing in overseas equities attracted 730.1 billion yen this month, fueled by the newly raised NISA limit, particularly impacting U.S. and other global stock funds.

Market Dynamics and Investor Behavior

While older retail investors in Japan exhibited a degree of skepticism amid a sustained rally, younger investors remained enthusiastic, using NISA accounts and other instruments to build assets. Concerns over the sustainability of social welfare programs prompted increased interest in stock investments among younger age groups.

As the Nikkei Stock Average reached a roughly 33-year high, individual investors who bought stocks last fall moved to lock in profits, resulting in a net sale of 1.07 trillion yen in Japanese stocks during the second week of January—a 10-year high.

Looking Ahead

The impact of this surge in retail investor activity, coupled with the global market dynamics, will be closely monitored as January’s trends may be influenced by factors such as winter bonuses and investors aiming to max out contributions at the start of each year. Whether this boom continues in February and beyond remains a key area of focus.