Japan’s mutual fund assets jumped 30% to 34 trillion yen (US$218.1 billion) year-on-year in 2024 as retail investors switched their savings out of low interest rate bank deposits into the Nippon Individual Savings Account (NISA).
Launched in January 2024, the new NISA gives tax breaks for investments in stocks, including broad-based index funds.
This, along with a stock market rally that lifted the benchmark Nikkei stock index 19%, attracted 15 trillion yen of net inflows into mutual funds last year, more doubling from 7 trillion yen in 2023, according to Daisuke Motori, director of manager research at Morningstar.
The rally was driven by strong corporate earnings, especially for exporters that gained from a weak yen.
“Investors’ behaviour notably shifted last year, with a pivot from savings to investments, particularly into low-cost index funds that reaped the benefits of NISA’s tax-exempt allowances,” Motori says in an interview with Asia Asset Management.
But he says whether the growth trajectory will continue this year depends largely on global market performance.
“It’s challenging to forecast [the outlook]. But the trend of strong inflows, particularly through NISA accounts, is expected to persist,” he says.
As far as investment trends are concerned, he says retail investors in Japan still prefer US and global equities funds, though some may consider reallocating to Japanese equity funds with the strengthening yen.
He also notes that net inflows into exchange-traded funds have been declining since 2022 as the Bank of Japan slowed ETF purchases. Nevertheless, he says ETF assets still saw a “significant increase”, primarily from the introduction of active ETFs in 2023.
More than ten active ETFs have since been listed on the Tokyo bourse. According to Motori, investors are attracted by the underlying approaches of these funds.
“For example, the active ETF managed by Sumitomo Mitsui Trust Asset Management is based on the company’s existing proven mutual fund strategies such as high-dividend and equity-focused types. This offers investors the benefits of established track records,” he says.