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Cash Hoards to Baseball Bunts Show Japan Running Scared of Slump

Decades of Decline Create Nation of Bunters as Japan Shuns Risk
Japan spends nearly as much on life insurance as the U.S., despite a population less than half as large. Illustration: Dorothy Gambrell

Dec. 7 (Bloomberg) -- Kayoko Okamoto spent a decade knocking on a hundred doors a day trying to persuade some of Tokyo’s most well-to-do residents to sign up for free brokerage accounts. The former saleswoman for Aizawa Securities Co. said she was lucky if she got 10 people a month to take a chance.

With the Nikkei 225 Stock Average down 76 percent from its 1989 peak and 1.5 quadrillion yen ($18 trillion) in wealth erased when the asset bubble burst, a generation of Japanese investors has grown up believing stocks only go down.

“My job was putting up with rejection,” said Okamoto, who transferred to the mid-sized brokerage’s planning department in July. “Most people have no tolerance for risk.”

It isn’t just stocks, Bloomberg Businessweek reports in its Dec. 10 edition. The country suffers from a play-it-safe mentality that has become ever-present in daily life, according to Harvard University sociologist Mary Brinton. “There’s a tendency to focus more on potential downsides rather than on opportunities,” said Brinton, co-author of the 2010 book “A Japan That Turns Its Back on Risk.”

That may explain why regulators held up vaccines approved decades earlier in other countries, and why few Japanese students study abroad, said Brinton. A record 844 trillion yen, almost twice the country’s annual economic output, sits idle in cash at home and savings accounts earning as little as 0.02 percent interest, according to government data.

Risk avoidance even extends into sports. Professional baseball teams in Japan bunt twice as often as Major League Baseball clubs in North America, sacrificing a runner to increase the odds of a safe score, according to a 2005 study by Ken Oikawa, a kinesiology professor at Tokyo Gakugei University.

Risk Aversion

By many measures, Japanese people are the world’s most cautious. About 73 percent describe themselves as risk-averse, according to a 2008 study of 51 countries by Stockholm-based World Values Survey. Ghana, Indonesia and India had the highest rate of respondents who said taking risks is important, the study showed.

According to the Global Entrepreneurship Monitor, less than 4 percent of working-age Japanese intend to start a business within three years. That’s the third-lowest rate among 54 countries surveyed last year, behind only the United Arab Emirates and Russia.

Although Japan’s population of 127 million is less than half that of the U.S., Japanese spent $525 billion on life insurance last year, second only to the U.S. at $538 billion, according to a Swiss Re study.

Culture of Conservatism

A culture of conservatism may also be why polls show the Liberal Democratic Party will likely return to power in national elections on Dec. 16. The party governed Japan for more than a half century after World War II.

The LDP presided over the bubble of the late 1980s and the “lost decade” that followed in the 1990s and 2000s, when economic growth averaged just 1.2 percent and public debt rose to more than 170 percent of gross domestic product. The frontrunner to become Japan’s new prime minister is the LDP’s Shinzo Abe, who served as premier in 2006 and 2007.

“There’s a hunker-down mentality and a feeling that the LDP have been there through thick and thin and have the experience,” said Jeff Kingston, professor of politics at Temple University’s Tokyo campus. “On the other hand, these are the people that got us into all the problems in the first place.”

Still, there are real reasons for caution when it comes to Japan’s equities market. “Looking back at the past two decades, it was absolutely the right decision to stay away from stocks,” said Soichiro Monji, who helps oversee 5 trillion yen as chief strategist at Tokyo-based Daiwa SB Investments. “We’ve had a few rallies, but they’ve all been temporary.”

‘Unsavory’ Business

Corporate scandals have also reinforced doubts. Nomura Holdings Inc. Chief Executive Officer Kenichi Watanabe resigned in July over insider trading at Japan’s biggest brokerage. That followed a $1.6 billion accounting fraud at Olympus Corp. The camera maker’s shares dropped as much as 81 percent, erasing 548 billion yen in market value, data compiled by Bloomberg shows.

“The whole business seems unsavory,” said Toshiya Enomoto, an engineer who keeps his money in a bank account. “My parents taught me: ‘Don’t gamble and stay out of the stock market.’”

The breakdown of the lifetime employment system may be the main source of anxiety that leads people to play it safe, said Harvard’s Brinton and co-author Toshio Yamagishi, professor at Tamagawa University. There’s prejudice against hiring people mid-career, and with companies firing workers and making fewer long-term commitments to employees, second chances are hard to come by.

“There’s a sense that if you screw up, it’s kind of over,” Brinton said. “Once you get pushed out of a group, you don’t get back in.”

Investment Incentives

To lure Japanese back to the market, the Financial Service Agency has proposed that those who invest pay no taxes on their first 1 million yen of stock investment. Japan already has the lowest taxes on dividends among developed countries and a 10 percent capital gains tax, which compares with 15 percent in the U.S. and as much as 28 percent in Britain, according to Ernst & Young LLP.

The lowest valuations among the world’s major markets have similarly failed to entice Japanese investors. The Topix Index trades for 0.9 times book value compared with 2.1 for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. That means companies on the Topix can be bought for less than the value of their assets while U.S. firms trade for twice as much.

Share Ownership

Stocks only account for 6 percent of Japan’s household assets, compared with 33 percent in the U.S. and 15 percent in Europe, according to the Bank of Japan. Overseas investors now hold 25 percent of Japan’s shares, compared with 5 percent at the height of the bubble in 1989, according to the Tokyo Stock Exchange.

Data from the government statistics bureau show the average household headed by a person in their sixties has 21 million yen in savings and investments. That’s less than half the 54 million yen needed for retirement, according to calculations based on estimates from the Japan Institute of Life Insurance. Japanese live an average of 84 years.

“I’m worried my money will run out before I die,” says Tsuyoshi Kiuchi, a former Tokyo Gas employee whose assets have shrunk after putting most of his retirement package into a bank account 12 years ago. “I’m frustrated with getting zero interest on my savings, but I was too scared to risk losing the principal.”

To contact the reporters on this story: Masaaki Iwamoto in Tokyo at; Satoshi Kawano in Tokyo at; Jason Clenfield in Tokyo at

To contact the editor responsible for this story: Nick Gentle at

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