How to Buy Japanese Stock

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Buying stocks has been a traditional investment option the world over, and Japanese stocks are no exception to this rule. For U.S. residents, some Japanese stocks are available for purchase via American Depository Receipts (ADRs) and exchange-traded funds (ETFs) at virtually any major stock broker since they are listed on U.S. exchanges. 

Investors in Japan have to follow a different protocol before being able to trade and invest in the stock market. If you wish to trade or invest directly in Japanese stocks, then read on to find out the steps you’ll need to take to get started.

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How to Buy Japanese Stock

Investing in Japanese stocks can be a good way to diversify your portfolio. Japan is one of the world's largest economies, with a rich history of innovation. There are many investment options available, from established companies to new technology firms. However, beginners may find the Japanese stock market challenging. Language barriers, cultural differences, and different trading practices can complicate the process. This guide will cover important steps and considerations for buying Japanese stocks. It will include tips on selecting the right brokerage, learning market regulations, and finding investment opportunities. Whether you are a seasoned investor or just starting out, knowing how to buy Japanese stocks can improve your investment strategy. This may lead to attractive returns.

Step 1: Open a Trading Account

You must first open a Japanese trading account to buy and sell stocks directly on the TSE/TYO, which you can do if you are a Japanese national or have a Zairyu Card to officially prove your residential status as a foreigner living in Japan. 

Having knowledge and familiarity with the Japanese language is a big plus to begin trading stocks directly in Japan, although some brokers can provide English language support for their foreign customers. Two Japanese brokers that provide trading accounts for foreigners include SBI Shoken (SBI証券) and Rakuten Shoken (楽天証券). 

If you instead open an account with an international broker, you may even be able to trade the largest Japanese stocks free of commissions. Also, most U.S.-based stock brokers let you trade ADRs that may be less costly than trading Japanese stocks via a Japan-based broker, so keep it in mind when you select a stock broker to trade. 

Step 2: Fund Your Trading Account

You should ideally already have a Japanese bank account with a local bank since you’ll have to transfer funds from your bank to fund your trading account before you can purchase Japanese stocks. The two brokers mentioned above provide direct links to most major banks in Japan. 

Rakuten Group also owns its own online bank that you can link to your Rakuten trading account. If you plan on trading in other markets, you might instead opt for a good international broker that allows you to buy and sell stocks in Japan and elsewhere. Also, if you plan on trading only large-cap Japanese stocks, then you might choose an international broker since you could save on commissions versus a Japanese broker. 

Step 3: Start Trading

Once you’ve completed the steps outlined above, you’ll have a live stock trading account open with either an international or a Japanese broker. You will also need to gain access to a trading platform supported by your chosen broker to enter your trades if you wish to do so online.

Why Should You Buy Japanese Stock?

Investing in Japanese stocks can be a good opportunity for international investors. Japan is the third-largest economy in the world. It is known for technological innovation and a strong industrial base. Japanese stocks can offer resilience and recovery potential during economic shifts. There are many sectors to choose from, including automotive, electronics, and pharmaceuticals. Current valuations of Japanese stocks may also provide attractive entry points. Japan is implementing monetary easing and structural reforms to boost economic growth. Understanding these factors can help enhance your portfolio and capitalize on new opportunities.

Strong Economic Recovery

Japan's economy is showing signs of a strong recovery, aided by government stimulus measures designed to boost growth and enhance consumer spending. Recent data reflects improvements in industrial production and increased consumer confidence, contributing to a favorable environment for company profits. As businesses grow and evolve, this economic stability could encourage higher corporate earnings, making Japanese equities an attractive investment option for those looking to take advantage of trends in a recovering market.

Diversification Benefits

Adding Japanese stocks to your investment portfolio can provide diversification benefits. Japan is the world’s third-largest economy. It offers investment opportunities in various sectors like technology, automotive, and healthcare. This variety increases exposure to different industries and helps reduce overall portfolio risk. Incorporating Japanese stocks may protect investors from volatility in domestic markets. It also allows them to capitalize on growth opportunities in a stable, mature economy.

Valuation Opportunities

Many Japanese companies are viewed as undervalued in comparison to international counterparts, which offers appealing opportunities for discerning investors. Their price-to-earnings ratios are frequently lower than those found in the U.S. or Europe, indicating potential for capital growth as the market stabilizes and global economic factors improve. As investors begin to notice these undervalued assets and market conditions start to normalize, Japanese stocks may experience an increase in interest, creating a positive atmosphere for investment.

Considerations Before Buying Japanese Stock

Investing in Japanese stocks can offer good diversification. Japan is one of the world's largest economies. However, investors should be careful before entering this market. It is important to understand Japan's economy, industrial strengths, and cultural factors. The regulatory environment is also key. Investors need to consider currency fluctuations and geopolitical risks. They should be aware of the unique aspects of Japanese corporate governance. By evaluating these factors, investors can improve their chances of success in Japanese equities.

Market Volatility

The Japanese stock market can experience significant fluctuations. These changes are influenced by various factors. Global economic conditions, currency fluctuations, and domestic policy changes can all play a role. Events like shifts in interest rates or geopolitical tensions can lead to rapid price swings. Investors should stay vigilant and be prepared for potential volatility. This volatility can impact individual stock prices and the broader market. Using risk management strategies and maintaining a long-term investment perspective can help navigate these uncertainties.

Cultural and Regulatory Differences

Understanding Japan's corporate culture is important for successful investing. Japan's business approach focuses on consensus and long-term relationships. This may differ significantly from Western practices. The regulatory framework in Japan governs corporate operations and financial reporting. This framework can present challenges. Cultural and regulatory nuances can impact how companies operate. They can also affect how companies disclose their earnings. Being aware of these aspects can improve your ability to evaluate companies. This knowledge can help you make informed investment choices.

Economic Dependency

Japan's economy relies heavily on exports. This makes it sensitive to changes in global demand and trade relations. Major industries in Japan include technology, automotive, and machinery. These sectors depend significantly on international markets. Therefore, shifts in trade policies, tariffs, or economic slowdowns in important markets like the United States and China can impact Japanese companies. Investors should monitor global economic indicators and trade relationships. These factors can directly influence the profitability and growth of Japanese firms.

About the Japanese Stock Exchange 

Japan’s principal stock exchange, the Tokyo Stock Exchange (TSE/TYO), was founded in 1878. It is currently the world’s 3rd-largest stock exchange by market capitalization with a market cap of $6.24 trillion as of July 2024. The exchange is the home of such well known stocks as Mitsubishi, Sony, Honda and Toyota. 

The exchange has a long history, having combined with Japan’s 10 other exchanges in 1943 to become the Japanese Stock Exchange, which was subsequently closed and restructured after the end of World War II. The Tokyo Stock Exchange reopened officially in May 1949. 

The 1980s saw an exponential rally in the Japanese stock market over a period of 9 years — making up as much as 60% of global stock market capitalization. During the resulting Japanese asset price bubble, the Nikkei 225 Index rallied from 6,649.50 in 1980 to close at 38,915.87 on December 29, 1989, which remains the Index’s all-time high. 

Since making that peak in 1989, the Nikkei 225 Index has traded under the 8,000 level twice, initially in 2003 and then in 2009. The index currently trades at the 26,652.52 level and had a yearly range of 16,358.19 to 26,894.25 thus far in 2020. 

The TSE/TYO currently makes up part of the publicly traded Japan Exchange Group (JPX), which arose from the Tokyo exchange’s merger with the Osaka Stock Exchange in 2012. As of September 2021, the TSE/TYO had a total of 3,784 stocks listed on the exchange. 

TSE/TYO trading hours are in Japan Standard Time (JST) that corresponds to Greenwich Mean Time (GMT) +9 hours. Trading on the Tokyo exchange is from Monday through Friday, 9 a.m. to 11:30 a.m. and 12:30 p.m. to 3 p.m. 

Trading Stocks in Japan

Automobile and electronics companies are among the most recognizable Japanese stocks. You can also trade the stocks of Japanese companies that participate in a wide range of other industries, including food, textiles, chemicals, pharmaceuticals, oil and coal products. Ticker symbols for TSE/TYO listed stocks consist of a 4-digit number that uniquely identifies them on the exchange.  

Each company’s stock has a minimum purchase amount per transaction that is decided by the company that issued the stock. For example, if a company has a minimum of 100 shares per transaction, you must have the funds to purchase the minimum 100-share lot. The minimum transaction size is 100 shares for the majority of companies listed on the TSO/TYO. 

When entering an order on a Japanese online trading platform, you’ll have the option of either entering a “Sashine” (指値) order, similar to a limit order where you specify your price and wait for the market to trade at your price, although the order is canceled at the end of the trading session. You can also enter a “Nariyuki” (成行) order, which is the Japanese equivalent of a market order where the price of your relatively immediate stock fill is determined by the prevailing market price.   

When you decide to sell your Japanese stock, you are obligated to report the amount of profit or loss on the Japanese annual earning declaration (確定申告). The amount you made or lost is considered by the tax office that then decides how much tax you have to pay. This is an important step with regard to your tax liability, so you should not ignore the official requirement to report gains or losses on your stock transactions. 

Most of the largest and best capitalized Japanese stocks can be bought and sold through American Depository Receipts (ADRs). These receipts are either listed on major U.S. exchanges like the NASDAQ and New York Stock Exchange (NYSE), or they trade in the U.S. over-the-counter (OTC) stock market.

If you plan on investing in Japanese stocks from outside of Japan, you can instead select an international broker with access to the TSE/TYO or use the ADRs and ETFs listed on U.S. stock exchanges. If you’re a Japanese national or a permanent resident of Japan, then you can follow the steps listed below to begin buying Japanese stocks in Japan. 

Best Online Brokers for Trading in Japan

While you can probably trade online through a Japanese broker, you may need knowledge of the Japanese language to efficiently navigate its website and supported trading platforms. Besides the Japanese brokers mentioned above, you can open an account with a reputable international broker such as Interactive Brokers or Saxo Bank that both offer stock brokerage services in Japan. You can compare various stock brokers that provide access to the Japanese stock market using the convenient table below.

Stock Movers

The TYO/TSO’s most active stocks include some highly recognizable names among Japanese companies, such as Sony Corp. (TSE/TYO: 6758, NYSE: SNE), Nissan Motor Co. (TSE/TYO: 7201, OTCBB: NSANY), Mitsubishi Motor Corp. (TSE/TYO: 7211, OTCBB: MMTOF) and Softbank Group Corp. (TSE/TYO: 9984, OTCBB: SFTBY). All of these major Japanese stocks are also listed as ADRs on U.S. exchanges and can be traded via a standard U.S. stock brokerage account. A table of the biggest gainers and losers in the Japanese stock market appears below. 

Are Japanese Stocks a Good Investment?

The Oracle of Omaha, Warren Buffett, turns 94 this year. His investment company, Berkshire Hathaway (NYSE: BRK-A) has among the most impressive stock portfolios and returns in the business. A subsidiary of that company recently made a $6 billion investment in 5 major Japanese trading houses. The Japanese companies that Buffett invested in include: Mitsubishi Corp. (TSE/TYO: 8058), Itochu Corp. (TSE/TYO: 8001) Mitsui & Co. (TSE/TYO: 8031), Sumitomo Corp. (TSE/TYO:4005) and Marubeni Corp. (TSE/TYO: 8002).

These Japanese trading companies have similar business models to Berkshire Hathaway, investing primarily in mining, energy and consumer goods. Other money management firms, such as Franklin Templeton for example, have done extremely well for themselves and their clients by investing in Japanese stocks. While opportunities exist in all capital markets, the Japanese stock market is well worth considering for any serious investor. 

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