Japan’s shift to an inflationary economy is changing local investment behaviours which in turn will fuel the growth of the local financial industry.
This is according to Morgan Stanley strategist Koichi Sugisaki, who said that Japanese savers who previously only held cash savings as their main financial goal are now also focused on protecting their assets against inflation.
“We anticipate a steady increase in risk-asset investments such as stocks and mutual funds from households,” Sugisaki said in a recent note.
“Movement from savings to investments is strengthening among younger people, who are less trapped in deflationary thinking and more likely to receive long-term investment benefits.”
Sugisaki said the reallocation of household wealth of deposits, insurance policies and pension products into riskier assets won’t necessarily impact bank deposits, but could reduce liabilities for life insurers and pension funds.
He suggested this capacity to invest in securities should continue to increase for banks, but decline for life insurers and pension funds.
More inflows to stocks and opportunities for banks
The new Nipon Individual Savings Account, or NISA, introduced in 2024 is boosting investments into risk assets, according to Morgan Stanley.
The firm said that this new tax-exempt investment system could be a catalyst for higher engagement of retail investors in Japan, similar to the introduction of Individual Retirement Accounts (IRAs) in the U.S. in the 1970s.
“IRAs are an effective way for individuals to prepare for their retirement in the U.S.,” said Morgan Stanley equity analyst Mia Nagasaka. “We think that we’ll see a similar engagement path with NISA in Japan.”
Based on an outlook for inflation in Japan, Morgan Stanley forecasts Japanese financial assets could rise about 15% from Y2,230trn to around Y2,500trn by 2030.
This will likely fuel the growth of the local financial industry, according to the firm.
“The migration of savings into high-value products presents new opportunities for banks,” Nagasaka said.
“This seismic shift among Japan’s retail investors is poised to expand the net financial assets in the wealth management market, where demand is growing rapidly for more refined, customised services.”
Morgan Staney noted that more than half of Japan’s financial assets are currently held by the ultra-wealthy and wealthy, which will be the focus for big banks in expanding their wealth-management business.
Meanwhile, the mass affluent population or non-wealthy represents a large potential market where financial institutions haven’t been active, according to Sugisaki.
“Some top players started zero-commission equity trading for Japan to reach this group that could potentially be sophisticated investors in the future,” Nagasaka said.
