Increasing Small Investments in Japan... "Fueling Yen Depreciation"

Japan Triples NISA Contribution Limit
Overseas Investment Expected to Rise Amid Low Growth and Low Interest Rates in Japan
Bloomberg: "Will Depreciate Yen Value"

Bloomberg reported on the 15th that the Japanese government’s plan to expand the individual 'Nippon Individual Savings Account (NISA)' tax exemption system from next year could accelerate the yen depreciation trend in the medium to long term.

According to the report, the total household savings in Japan amount to 1,107 trillion yen, and some of these funds are expected to flow into NISA accounts seeking tax-exempt benefits.

NISA is the Japanese version of the Individual Savings Account (ISA), allowing individuals to invest in Japanese or overseas stocks and bonds with tax-exempt benefits on earnings. The Japanese government aims to double personal asset income and plans to triple the NISA investment limit from the current 1.2 million yen to 3.6 million yen starting next year.

The market expects NISA assets to increase significantly from the current total of around 50 billion dollars (as of the end of March). However, investors are increasingly expected to turn their attention to overseas stocks rather than low-interest Japanese assets. In fact, overseas stocks and fund assets in NISA have been growing at an average annual rate of over 30% since 2015. If this trend accelerates, the market forecasts that the yen’s value could decline in the medium to long term.

Tsuyoshi Ueno, Senior Economist at NLI Research Institute in Tokyo, said, "The expansion of NISA will certainly drive an increase in overseas investments," adding, "As investors regularly invest in overseas assets, it could result in continuous selling of the yen." He further noted, "Japan’s low growth outlook and low returns imply a high possibility of capital outflow from Japan."

The yen has depreciated by 11% just this year. This is due to the widening interest rate gap between the U.S. Federal Reserve’s aggressive rate hikes and Japan’s continued monetary easing policy. Although the Bank of Japan (BOJ) recently mentioned the possibility of ending negative interest rates, the interest rate gap between the two countries is not expected to narrow significantly in the near term.

Takayuki Yagi, NISA Marketing Manager at Mitsubishi UFJ International Asset Management, said, "The new NISA system will significantly change investment conditions," and predicted, "Many investors expect the yen’s value to decline in the medium to long term, which could lead to increased bets on foreign currencies and overseas investments."