As Japanese equities soar to record highs after a decadeslong slump, the government is now trying to encourage retail investors to put their one quadrillion yen in cash savings to work in the stock market.
The latest Bank of Japan quarterly survey showed that households still have over 1,000,000,000,000,000 yen, approximately $7 trillion, in cash and savings as of the end of December. A quadrillion is about the same as the total number of stars in 10,000 Milky Ways, or the number of cells in the bodies of 28 adult men, by one estimate.
Cash makes up 52.6% of household financial assets in Japan, much higher than other countries due to the prolonged deflationary environment. According to the BOJ, as of March 2023 the percentage of household assets held in cash in the US stands at 12.6% and 35.5% in the euro zone.
However, preferences are starting to shift. The total value of household assets in stocks in Japan increased 29.2% year-on-year, compared to the 1% increase in cash savings. Investment attitudes are changing “as the soaring market has given considerable capital gains to many households,” said Tomo Kinoshita, global market strategist at Invesco Asset Management.
Kinoshita estimates that one in 10 households in Japan have earned 6 million yen ($40,000) in capital gains as of Feb. 13. The benchmark Nikkei 225 Stock Average closed at a record on Feb. 22, exceeding the level last reached in 1989. Earlier this month, it breached the psychological level of 40,000 for the first time.
The Japanese government recently overhauled the tax-free Nippon Individual Savings Account, or NISA, making it more lucrative by scrapping a limit on how long dividends and other capital gains can receive tax exemptions, lifting annual contributions and doubling or more the lifetime contribution limit.
“It’s unlikely that savings in cash would grow further from here,” Kinoshita said.
Written by: Eddy Duan and Akemi Terukina @Bloomberg
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