Japan has the third-largest economy in the world, following closely behind China and the US. As Japanese investors venture beyond investing in domestic stocks, many have flocked to US stocks. This is no surprise, as the US and Japan have always had a good diplomatic relationship.
In this article, we’ll talk a bit about the Japanese foreign stock market. We will also discuss why US stocks are flourishing in Japan, the advantages of trading US stocks, as well as how you can start trading US stocks as a Japanese investor.
The foreign stock market in Japan
In Japan, the biggest foreign stock market is the Tokyo Stock Exchange (TSE), which has been proactively engaged with foreign stocks since the establishment of its foreign stock market in 1973.
US stocks on the TSE consist of two categories: ‘blue chip’ companies that are created and listed on US stock exchanges, as well as US companies that are listed on the TSE. All trading takes place with assets bought and sold in the Japanese yen.
Why would Japanese traders invest in US stocks?
The US stock market is popular with Japanese traders for the same reasons they are popular with international traders in general. The two main reasons are that the US stock market is huge and highly liquid, and the second is that Japanese investors can diversify their portfolio.
- The US stock market is huge
US stocks are some of the most traded in the world, and the US stock market is highly liquid. This is because the US economy is among the world’s largest.
By investing in US stocks, Japanese investors can gain exposure to the growth of the US market and potentially profit from it. They can also get the chance to invest in leading ‘blue chip’ companies around the world in various sectors and capitalise on high growth companies in the US.
- Portfolio diversification
Japanese traders may also choose to invest in US stocks to diversify their portfolio across geographies. By investing in overseas stocks, Japanese traders can reduce risk in their portfolio in case the Japanese stock market takes a dip.
Advantages of trading US stocks in Japan
One of the main advantages is that US stock trading is very commonplace in Japan, and investors can find stock price information in daily newspapers, financial journals, and also on the news on TV. US stock traders in Japan will never lack for information. They can also easily access charts and news with their respective brokers.
Another advantage of trading US stocks in Japan is that they can be traded in the same manner as local Japanese stocks. Stock orders can be executed on a real-time basis, and orders can be placed easily on trading platforms. Even the daily price limits of US stocks are the same as local Japanese stocks. This makes it very easy for local traders to take up US stock trading.
Additionally, foreign stocks such as US stocks can be traded in the Japanese yen. This saves the hassle of converting currencies, and it can also minimise risk for traders as they avoid potentially unpleasant currency exchange rates.
On top of that, traders will find that US stocks can be traded with a relatively small amount of principal. This depends on the broker and the rates they issue, but it is entirely possible to start investing with only JPY 100,000.
Finally, annual reports and breaking news of US companies listed on the TSE are usually available in Japanese. When investing in stocks, it is crucial that an investor has adequate knowledge of the company they are purchasing a share of. Japanese investors can usually access disclosure materials in both Japanese and English.
Potential risks of trading US stocks in Japan
One of the main disadvantages of trading US stocks in Japan is the time difference between the two countries. Japan is about 13 hours ahead of the East Coast and 17 hours ahead of the West Coast. This is a substantial difference, and Japanese investors may find it hard to keep up with breaking news in the US during the day. Breaking news can impact the performance of individual stocks and the stock market, which Japanese traders may miss.
Another disadvantage of trading US stocks in Japan is that you have to be a Japanese citizen to open a trading account with some of the leading domestic banks. For example, neither Fidelity Japan nor Citibank Japan allow US citizens to open investment accounts with them. Rakuten, SBI, and Monex allow US citizens to open accounts with them but have limitations on the products they can trade – they can trade Japanese stocks but not US ETFs. When in doubt, foreign investors residing in Japan may want to contact international providers with a Japanese presence instead.
How Japanese investors can get started trading US stocks
The TSE has made it relatively simple for Japanese investors to trade US stocks. Below are steps that as to how traders can participate in the US stock market:
- Open a trading account — Japanese investors can seek out domestic brokers that provide access to global markets. Note that many local brokers focus on serving clients in Japanese only, and they usually do not provide services in English. Some also, as mentioned, do not allow foreign citizens to open trading accounts. For foreign investors in Japan who prefer to communicate in English, they can open an account with an international broker with a Japanese presence. These include Saxo, Interactive Brokers, and Fidelity.
- Fund your account — After verifying your account with legal documents, you should also check if there is a minimum balance your broker requires of you to deposit into your account.
- Decide which stocks you would like to trade — You should also do your due diligence and check if there are any minimum purchases for the companies in which you intend to invest.
- Start trading — You can open a position when you have decided on the shares you would like to trade. Remember to set any stop-loss orders when you open your trade, and you should monitor the markets closely.
The bottom line
Trading US stocks in Japan is relatively straightforward, and anyone interested can give it a go. Just remember to understand your own risk tolerance before you start making trades and never risk more than you can afford to lose. If you are new to trading, you can also start with a demo account to learn the ropes of your trading platform first.