A Japanese program that will provide tax breaks to spur people to buy stocks may achieve the government’s targeted 25 trillion yen ($268 billion) in investments by 2020, a Fidelity Japan researcher said.
The tax-free Individual Savings Account initiative, which is set to start in 2014, can grow by more than 3 trillion yen a year over the next seven years, Satoshi Nojiri, head of Fidelity Investor Education Institute in Tokyo, said in an interview.
Prime Minister Shinzo Abe’s government last month approved the plan, which was first proposed under the previous administration. Japanese policy makers are seeking to encourage households to move assets from cash to equities to fund growing industries and spur the world’s third-largest economy.
Under the 10-year program, modeled on a financial product created in the U.K., people will be allowed to invest as much as 1 million yen a year in stocks and investment trusts without paying tax on returns. Abe extended the term of the plan from the original three years sought by his predecessor’s government.
“Our calculation is based on the assumption that about half of the 25 trillion yen comes from new investments,” and the rest from existing investments moving to the account, said Nojiri, 53. His institute has ties with Boston-based Fidelity Investments, the second-biggest U.S. mutual-fund manager.
The 25 trillion yen amount is equivalent to 7.5 percent of the market value of the Tokyo Stock Exchange’s first section.
While the Nikkei 225 Stock Average has gained 30 percent since Nov. 14, when Abe began an election campaign by urging more aggressive monetary easing, it remains 71 percent below its 1989 peak. The gauge fell 1 percent today.
Japanese have been reluctant to invest in equities since the collapse of an asset bubble more than 20 years ago caused stocks to plunge and ushered in an era of deflation that increased the incentive to save. More than half of households’ 1,510 trillion yen of financial assets were in cash as of Sept. 30 and about 6 percent in equities, central bank figures show.
Still, the stock rebound since November is luring individual investors. Retail investors made up 33 percent of equity turnover in the final week of January, up from a weekly average of 21 percent last year before the rally.
The government should consider making the Individual Savings Account permanent and allowing investors to switch from one security to another to attract beginners, Nojiri said in the Feb. 4 interview.
“The key to the Japanese ISA’s success is figuring out how to raise people’s motivations to invest,” he said. It’s necessary to dispel the myth that the Japanese pension system is stable and raise awareness of the need for individuals to manage their assets to prepare for retirement, he said.