Increasing Real Estate Wealth Is Another Key Driver
While the equity markets are an important indicator for both the government and the Bank of Japan (BOJ) to judge the success of Abenomics, the chief executive of Monex Securities, Oki Matsumuto, made an excellent point:
On March 19, the results of an annual land appraisal will be released. Matsumoto believes this year’s land prices are set to show the first year-over-year increase in prices in a long time, which would indicate to the Japanese people that the era of deflation may be coming to an end.
Putting the importance of this in context, Japan’s equity markets are worth $4–$5 trillion, and retail investors own approximately one-quarter of those assets, or roughly $1 trillion.5 The gains from the “wealth effect” last year of stock prices going up, fueling consumption, were definitely evident. But the real estate market in Japan is worth over $25 trillion6, or more than five times the equity market—and many more citizens participate in that asset class.
An increase in real estate values has the potential to change both consumption and investment behavior, as households feel their wealth increase. We will be watching that March 19 indicator very closely to see how a more positive wealth effect from real estate gains fuels the markets and the economy—but chances are, it will show a positive impact. As we know, the BOJ activities have a component geared to buying real estate investment trusts (REITs), and their performance has been quite strong, bringing more positive sentiment to that sector.
A house is a big-ticket item—Matsumoto believes that more money will flow into the equity markets as a result of the gains in real estate.
Conclusion on Investment Progress
In summary, while progress is just mixed so far on the current NISA account structure, the brokerage firms believe NISA is quite important to their future business, and they are doing all they can to attract new clients and investors. NISA may be restructured in coming years, and I believe the wealth effect from an improvement in real estate prices will help the progress along Abe’s mantra: from savings to investment.
1Source: Bank of Japan, WisdomTree on Household Asset Allocation Data.
2Source: Nicholas Smith, CLSA.
3Source: WisdomTree Japan Dividend Index.
4Comments made at the CLSA Japan Forum 2014.
5Source: Bloomberg, as of 1/31/2014, for the market capitalization of the TOPIX.
6Source: Monex, as of 12/31/2013.
Important Risks Related to this Article
Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments focused in Japan are increasing the impact of events and developments associated with the region, which can adversely affect performance. Dividends are not guaranteed, and a company’s future ability to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.