Exchange chief says Japan inflation will drive savers back into stock market

Inflation is pushing Japan into a new era, which could lift equity by prompting more households to move savings from low-income bank deposits, the head of the country’s stock exchange operator has said.

Hiromi Yamaji, chairman of JPX Group, which controls the Tokyo and Osaka exchanges, said he hoped many Japanese would stop sitting on so much cash – the country’s households have accumulated ¥1 quadrillion ($7tn) in bank savings. – and look to stock markets for better returns in response to rising cost of living.

“They can feel inflation coming. . . when there was deflation, cash was king. But if inflation is coming, they have to be prepared,” Yamaji said in an interview.

Exchange-traded funds will probably be an introductory route into equities for many people, said Yamaji, who this year became head of JPX and is trying to make the stock market more attractive to individual investors who have viewed it as too risky. .

Many Japanese have been highly skeptical of holding equities since the bursting of the country’s economic bubble more than three decades ago, while years of stagnant prices meant households could overlook the fact that bank deposits were worth almost nothing. Were not earning returns.

Yamaji said, “He did not care for it, even if it did not yield any return.” “But once inflation kicks in . . . they have to be prepared to hedge against inflation and it is very clear that deposits do not give you adequate returns for hedging.”

Japan’s main measure of consumer inflation excluding fresh food and energy rose more than 4 percent in April for the first time in nearly 42 years.

With prices rising more broadly, market expectations are also rising that new Bank of Japan governor Kazuo Ueda will gradually move towards unaltered decades of ultra-loose monetary policy.

At the same time, Japan’s stock markets have returned to a level that was not seen in 33 years. The Broad Topics index is up 14.5 percent this year, which investors say is due in part to JPX’s efforts to help companies under Yamaji work harder to improve their capital efficiency and increase their corporate value.

However, the rise has been mainly driven by foreign funds, while domestic Japanese investors – especially retail – have been far more cautious.

Yamaji suggested that Japan’s attitude to investing in the stock market would also change as the generation that lost money in the 1980s bubble reached old age.

“There was a generation that had a very bad experience when the bubble burst, but that was 35 years ago, but the number of people who had a bad experience is getting smaller,” he said, while a younger generation of investors is less cautious. It is about converting excess savings into riskier assets.

Nearly 17 million Japanese have opened a tax-sheltered investment product known as NISA since 2014. Yamaji said the stock market has risen nearly 50 percent since then, leaving a younger generation of investors sitting on significant unrealized gains.

From next year, the government will vastly broaden the investment scheme, allowing investors to buy shares worth up to ¥3.6 million a year using a Nisa account and raising hopes of a shift from cash savings to equity investment.