The font entrance of the Tokyo Stock Exchange (TSE) in Tokyo, Japan, on Monday, Aug. 5, 2024.
Noriko Hayashi | Bloomberg | Getty Images
Japan’s Tokyo Stock Exchange is asking listed companies to reduce their minimum investment thresholds to attract smaller retail investments.
Current guidelines suggest companies keep the minimum investment below 500,000 yen ($3,500). The TSE now hopes to lower that to around 100,000 yen.
The move aims to make it easier for a diverse range of investors to invest in individual stocks, thereby stimulating the development of the Japanese economy, a group formed by the TSE composed of market experts said in a report published on Thursday.
“TSE will create an environment that is conducive to investment for a diverse range of individuals, including young people,” the report added.
Foreign investors own about 32% of the Japanese stock market while domestic investors hold 16.9%, TSE’s most recent data in 2023 showed. Financial institutions make up 28.9% of the domestic stock market, while the remaining is divided among securities companies, business corporations and government entities.
The move marks a complete reversal of the government’s attitude, said UBP Investments’ senior portfolio manager Zuhair Khan.
After the bursting of the bubble, Japanese had high risk aversion and considered investing in the stock market as similar to gambling.
Zuhair Khan
UBP Investments
Historically, Japan had exceedingly bureaucratic processes around stock trading and shareholder registers, explained Khan. These reared their heads through paper and snail-mail exchanges, which required considerable manual input and storage of paper documents, resulting in high costs.
“Setting high investment unit levels was one way to reduce the manual processing cost and burden,” he told CNBC. “Also, the government used to strongly prefer institutional investors over retail.”
Ghosts from the past also linger. The Japanese asset price bubble in the late 1980s, fueled by easy monetary policy and speculative investments, led to a crash in asset prices from the 1990s and a prolonged period of economic stagnation.
“After the bursting of the bubble, Japanese had high risk aversion and considered investing in the stock market as similar to gambling. Younger Japanese have no such aversion. The government and TSE want to make it easier for these young investors to save and invest,” he told CNBC.
But it’s not just the younger investors that Japan is courting.
Japanese pensioners have an average shortfall of 20 million yen in their accounts to retire comfortably, Khan added. Instead of having the government fill this gap, Japan is encouraging households to save and invest more for their retirement.
“Many older wealthy Japanese are reluctant to return to their own market after the falls of the 1990s, and the high minimum investment units of great companies like Keyence are an additional hurdle for them,” said Richard Kaye, a portfolio manager specializing in Japanese equities at Comgest.
According to trading data volume from the TSE, foreign investors traded 20 billion shares on the main prime market between April 7-11, while local individuals traded 10 billion.
Local individuals, the main beneficiaries of the smaller minimum investment units, are significant and can be an important “swing factor” in growth if they choose to come out and buy with incentives like cheaper minimum investment units, added Kaye.
