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Stocks

Tax-free investing off to promising start in Japan

TOKYO -- Purchases of stocks and other instruments by individual investors under the Japanese version of the U.K.'s Individual Savings Account program, which began in January, exceeded 1 trillion yen ($9.7 billion) as of the end of March.

     Nikkei Quick News asked two analysts if they expect investment under Nippon Individual Savings Account (NISA) program to boost the Nikkei Stock Average. The key index has been lackluster of late because of profit-taking after the gauge recovered the 15,000 level in its recent surge since late May. 

Seiichi Miura, investment strategist at Mitsubishi UFJ Morgan Stanley Securities

The total number of accounts under the NISA program exceeded 6.5 million as of the end of March, up roughly 40% from when the program started three months earlier. It is the first time that the number of investment accounts has increased by the millions in a period of just a few months since 1987, when Nippon Telegraph and Telephone made its market debut. The program has gotten off to a good start.

     Many individual investors appear to be buying stocks in Canon and trading companies through the program. Stocks with higher dividend yields and higher returns on equity, and stocks in companies that emphasize shareholders are being bought. Real estate investment trusts with high distribution yields are also popular. The price movements of REITs have been smaller than those of other stocks, which is reassuring to new investors.

     The Nikkei average continued to slide from January, when the program started, through March. Investors who had used up the 1 million yen tax-free limit at the start of the year might have purchased stocks at high levels. Although the stock market is recovering due to the rally after late May, there are concerns that newcomers may feel reluctant to invest after making losses due to falling stock prices at the start of the year. The desire to invest again after making a profit is very important in broadening the investor base. 

Takashi Oba, senior strategist at Okasan Securities

The NISA program has been steadily growing larger. It has been reported that stock purchases by individual investors under the program stood at 1.0034 trillion yen as of the end of March. The important thing is that more than 70% of those who opened accounts under the program had not invested as of the end of March. The Nikkei average fell from January through March. That shows that many individual investors missed a buying opportunity.

     The Nikkei average surged from late May through June. There must be many investors who have not yet used up their tax-free investment limit of 1 million yen under the program.

     Nonetheless, the stock market is overheating somewhat. The stock market may fall after July due to profit-taking sales by those who are not investing through the program. It will be an opportunity for bargain hunting by individual investors who have been waiting for a chance to invest through the program.

     The stock market was underpinned by public funds when the Nikkei average fell below 15,000. Investment under the program is likely to boost the stock market in the second half of the year.

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