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It has been one year since the significant expansion of the Nippon Individual Savings Account (NISA) investment program, in which gains on small investments are exempted from tax. It is hoped that this program will steadily become an established means of helping the public to stably build up their assets and revitalize the economy.
The number of NISA accounts is steadily increasing. At the end of September, it had reached about 25 million, an increase of around 23% over the previous year. Before the expansion, NISA tended to be used more by people aged 60 and over, but it is a feature of the current climate that the number of young people opening accounts is increasing.
Those in their 30s own about 17% of NISA accounts, and those in their 20s account for just over 10%. People in their 40s account for over 19%, the largest number, and the total owned by those in their 20s to 50s is two-thirds of all accounts.
Shifting household financial assets, which tend to be stored as savings, into investments to revitalize the economy has been a long-standing challenge. The long slump in the stock market following the collapse of the bubble economy has made the public reluctant to take risks with their investments.
The fact that stock prices in Japan and the United States have both recently reached record highs has boosted the mood for investment and it has also created tailwinds for NISA. The increase in the number of NISA accounts across a wide range of age groups is beneficial for both households and companies. The importance of starting to invest early in order to prepare for life in old age needs to be recognized.
Japanese companies have been conducting more foreign direct investments, such as by building factories overseas and acquiring companies. However, most of the profits are retained at their overseas bases for reinvestment. This is a reason why households are not feeling the full benefits of the strong performances achieved by leading companies.
If companies’ profits are channeled back to household finances through NISA, a revitalization of consumption can be expected.
Investment trusts that invest in U.S. stocks are very popular, and the strong tendency for funds to flow overseas is a challenge. It has been noted that this flow overseas is a factor behind the yen’s depreciation.
The retained earnings of Japanese companies have reached ¥600 trillion. Instead of simply hoarding profits, it is necessary for companies to strengthen growth potential by focusing on capital investment and increasing wages in order to increase the attractiveness of their stocks.
It should not be forgotten that investment carries risk and is a matter of personal responsibility.
When the Nikkei stock average plummeted in August, many people who had recently started investing must have wondered whether they should continue.
NISA is a mechanism that reduces risk by making small, long-term and diversified investments. It will be important for the public and private sectors to enhance financial education about the program.
A spate of scandals at such institutions as the Tokyo Stock Exchange, MUFG Bank and Nomura Securities has dampened the mood for investment. There is no question that trust is the most important factor in asset management. Those involved in the finance industry should straighten up and work to improve their professional ethics.
