Investors Turn to Japanese Stock Market as Inflation Looms
As inflation looms over Japan, Hiromi Yamaji, chairman of the JPX Group, believes it could prompt households to withdraw their savings from low-yielding bank deposits and turn to stock markets for better returns. Yamaji expects many Japanese people to invest in the stock market as they seek a hedge against inflation and look to capitalize on rising stock prices. Exchange-traded funds (ETFs) could be a first route into stocks for many. Japanese investors have been skeptical of investing in the stock market for over three decades since the country’s economic bubble burst. However, many are now diversifying their portfolios to capture the unrealized gains in the stock market and boost their returns.
Changes in Attitude Towards Investing in Stocks
According to Yamaji, attitudes towards investing in the stock market are changing. The people who lost money in the 1980s bubble are now reaching old age, and a younger generation of investors is less cautious and more likely to invest in risky assets. Yamaji predicts that many Japanese, especially young investors, are looking for better returns on their investments and diversifying their portfolios to include stocks. Yamaji believes that due to this shift in investing strategy, household savings will shift more towards equity investments than low-yielding deposits. Yamaji suggests that the change in investments is partly due to JPX’s efforts under his leadership, pushing companies to improve capital efficiency and increase asset value.
Government Investment Programs
The Japanese government is keen to encourage more individual investors to enter the stock market and has initiated several programs to facilitate this. The tax-protected Program known as Nisa allows investors to buy up to 3.6 million yen worth of shares per year, and from next year, the government will significantly expand the investment program. This investment program allows for significant expansion, which Yanaji believes will lead to an acceleration from cash savings to equity investments.
Expansion in Foreign Funds
Although the stock market has gained approximately 50% since 2014, the increase is mainly driven by foreign fund investors. Japanese domestic investors, particularly retail investors, are still hesitant to invest in the stock market. According to Yanaji, JPX is trying to make the stock market more attractive to individual investors who view it as too risky. However, changes in investment attitude towards young investors may provide a significant boost to the stock market.
Hedging Against Inflation
Changes in inflation may be driving households’ changes in investors’ portfolios; many are now hedging against inflation through equity, commodity, and cryptocurrency investments. Hedging against inflation is essential as it protects an investor’s portfolio from inflationary pressures by investing in assets that maintain or increase their value as inflation rises. Investors hedge against inflation by investing in tangible, scarce or rare assets that hold or increase in value when inflation is high.
Summary:
As inflation looms over Japan, Hiromi Yamaji, chairman of the JPX Group, believes it could prompt households to withdraw their savings from low-yielding bank deposits and turn to stock markets for better returns. Also, the Japanese government is keen to encourage more individual investors to enter the stock market and has initiated several programs to facilitate this. Although the stock market has gained approximately 50% since 2014, the increase is mainly driven by foreign fund investors, while Japanese domestic investors, particularly retail investors, are still hesitant to invest in the stock market. However, changes in investment attitude towards young investors may provide a significant boost to the stock market, and many Japanese are now hedging against inflation through equity, commodity, and cryptocurrency investments.
Investors Prepare for Inflation Risk
Inflation is a general upward movement of prices and reduces the purchasing power of money. Investors around the world are preparing for the risk of inflation, which can erode returns and make it challenging for investors of fixed-income securities. The Bank of Japan core measure of consumer inflation, excluding fresh food and energy, rose more than 4% in April for the first time in nearly 42 years. This rapid increase shows the potential risks inflation could bring to the Japanese economy.
Protection Through Investment Diversification
Investors globally are diversifying their portfolios to hedge against the risk of inflation. Diversification reduces risk by investing in a variety of financial assets, such as stocks, bonds, mutual funds, and real estate. Investors can invest in different geographical regions and different sectors to further reduce risk. Holding assets that tend to rise in price when inflation increases, such as commodities, gold, real estate, or companies with robust pricing power and strong balance sheets, could protect investors from inflation’s impact.
Conclusion:
Inflation has a significant impact on the global economy, reducing investors’ purchasing power and limiting returns on fixed-income investments. Investors can hedge against inflation by investing in tangible, scarce, or rare assets that hold or increase in value when inflation is high. The Japanese stock market is gaining positive momentum as more investors seek better returns. Japanese investors are diversifying their portfolios to capture the unrealized gains in the stock market and boost their returns. Japan’s government is initiating programs to encourage more individuals to enter the stock market. Investors are preparing for the risks of inflation by diversifying their investment portfolios across multiple asset classes.
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Inflation is pushing Japan into a new era that could lift stocks by prompting more households to withdraw their savings from low-yielding bank deposits, the country’s stock trader chief said.
Hiromi Yamaji, chairman of the JPX Group which controls the Tokyo and Osaka stock exchanges, said he expects many Japanese people to stop sitting on so much cash – households across the country have amassed 1 quadrillion yen ($7 billion) in bank savings – and are looking to stock markets for better returns in response to the rising cost of living.
“They can smell the inflation coming. . . cash was king when there was deflation. But if inflation comes, they have to be prepared,” Yamaji said in an interview.
Exchange-traded funds would likely be a first route into stocks for many, said Yamaji, who became director of JPX this year and is trying to make the stock market more attractive to individual investors who have long viewed it as too risky.
Many Japanese have been deeply skeptical of owning stocks since the country’s economic bubble burst more than three decades ago, when years of stagnating prices meant households could overlook the fact that deposits banks yielded almost no return.
“They didn’t care, even though it didn’t generate any feedback,” Yamaji said. “But once the inflation starts. . . they have to be ready to hedge against inflation and it’s very obvious that deposits don’t give you enough return to hedge.
JapanThe core measure of consumer inflation, excluding fresh food and energy, rose more than 4% in April for the first time in nearly 42 years.
With prices rising more broadly, market expectations are also rising Kazuo Uedathe new Governor of the Bank of Japan, will gradually move towards unwinding decades of ultra-accommodative monetary policy.
At the same time, Japanese stock markets returned to levels not seen since. 33 Years. The Topix broad index is up 14.5% this year, which investors say is partly due to JPX’s efforts under Yamaji to push companies to improve capital efficiency and increase asset value. ‘business.
However, the increase was mainly driven by foreign funds, while Japanese domestic investors – especially retail investors – were much more cautious.
Yamaji suggested that Japan’s attitude towards investing in the stock market will also change as the generation that lost money in the 1980s bubble reaches old age.
“There was a generation that had the very bad experience of the bubble bursting, but that was 35 years ago, but the number of people who had that bad experience is going down,” he said. he said, while a younger generation of investors is less cautious. divert more savings to risky assets.
Since 2014, approximately 17 million Japanese have opened a tax-protected investment product known as Nisa. The stock market has gained around 50% since then, leaving a younger generation of investors sitting on big unrealized gains, Yamaji said.
From next year, the government will significantly expand the investment program, allowing investors to buy shares up to 3.6 million yen per year using the Nisa account and raising expectations for an acceleration from cash savings to equity investments.
https://www.ft.com/content/5e3c7ea7-2b4f-4da9-81ae-ab332affa5eb
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