The Japanese answer to Isas, is the Nippon Individual Savings Account, or Nisas. The potential boon for Japan ETFs comes from the fact that in order for investors to qualify for the tax breaks, they must by equities, ETFs, REITs or investment trusts, according to the FT. Bonds will not entitle investors to the tax benefits.
Two decades of deflation have prompted Japanese investors to embrace bonds, despite paltry yields, and other cash instruments. The Nisa program hopes to reverse that trend, but it could take a while for DXJ and EWJ to feel any impact because it may be a hard to sell to get Japanese investors into their own country’s equities.
Citing data from Mizuho, the FT reported nine in 10 Japanese have never owned a mutual fund and 80% have not owned equities. Should that trend reverse, EWJ stands to benefit. Although the ETF does not feature the currency hedged component that DXJ has, EWJ’s largest sector allocation is 21.4% to financial services and that positions EWJ to thrive if the Nisa gambit takes off. [Why Retail Investors Love Japan ETFs]
iShares MSCI Japan ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of DXJ.