Investing from Japan

This page suggests some approaches and funds that enable a Japanese investor to invest by applying the  Bogleheads investment philosophy.

Stock index funds
There are 332 index funds and ETFs in Japan, so there are plenty of options for Boglehead-style investing.

Indices available include:


 * TOPIX: capitalization weighted index covering ~90% of the capitalization of the companies traded on the Tokyo Stock Exchange.  This is the closest common index to a total domestic stock index fund.
 * Nikkei 225: Price-weighted (like the Dow 30) index of large companies in Japan.
 * MSCI All-world ex-Japan
 * MSCI Kokusai: Developed world ex-Japan
 * MSCI Emerging Markets

Expense ratios are generally higher for the older funds, especially the traditional mutual funds (投資信託), and are lowest for the newer ETFs (上場投資信託). The lowest expense ratio fund is the MAXIS TOPIX ETF (MAXIS トピックス上場投信), Code 1348 on the Tokyo Stock Exchange, with an expense ratio of 0.08%.

Vanguard ETFs
The following Vanguard ETFs are also available through certain Japanese brokers:

The brokers officially offering the above funds are: Rakuten, SBI, Monex.

Note: Some of the above Vanguard ETFs can also be purchased through Nomura, though they do not advertise this. Call and ask.

Bond index funds
The domestic bond fund with the lowest expense ratio is the Mitsubishi-UFJ Domestic Bond Index Fund (三菱UFJ 国内債券インデックスファンド), with an expense ratio of 0.37%.

The cheapest foreign bond index fund is the Markit iBoxx ABF Pan-Asia Index ETF (Code 1349), with an expense ratio of 0.19%. The Citigroup Nonyen World Government Bond Index ETF (Code 1677) has an expense ratio of 0.25%, and the Barclays Emerging Markets Local Currency Government bond index ETF (Code 1566) has an expense ratio of 0.45%. Foreign bond index funds are generally unhedged.

Individual bonds
Japanese savings bonds (個人向け国債) and regular Japanese government bonds (JGBs) can be purchased at banks, brokerages, and the post office. Note that some banks charge a maintenance fee to hold savings bonds and JGBs; there is no fee to hold them at the post office.

Individual foreign government bonds are also available at many brokerages.

Taxation
Japan taxes residents on their world-wide income. If you are a Japanese citizen or permanent resident living in Japan, you will have to report all your overseas income to the National Tax Authority (NTA). You also have to pay Japanese taxes on world-wide income even if you are neither of the above, but have lived in Japan for 5 years or more.

When investing through a Japanese broker, it is recommended to use a "Tokutei Kouza" (特定口座), which is a type of brokerage account that automatically calculates and pays your Japanese taxes on capital gains on stocks, eliminating the need to file a tax return just to declare your capital gains. (Note: there is no capital gains tax on bonds.)

US Person (citizen, green card holder)
If you are a US taxpayer, there are some restrictions on what you will be able to do, and some special issues you should be aware of. All Japan-domiciled mutual funds, ETFs and REITs (J-REITs) are considered by the US to be Passive Foreign Investment Corporations (PFICs). The taxation on these by the US is extremely unfavorable. To avoid having to deal with PFIC issues, a US taxpayer would need to stick with US-registered funds and ETFs, and/or individual Japanese stocks and bonds. The US taxpayer living in Japan has somewhat limited options for opening brokerage accounts (see below).
 * PFICs
 * Account access

US-based brokerage
As of this writing, the only US-based brokerage which is known to be willing to open an account for someone with a non-US address (including a US person) is Schwab, which offers the Schwab One International account, with a $25,000 minimum starting account balance requirement.

Japan-based brokerages
Many brokerages and investment houses place restrictions on what kinds of accounts they allow US persons to open, or refuse to deal with US persons entirely. Fidelity Japan and Citibank Japan both refuse to allow US persons to open investment accounts entirely. Rakuten, SBI and Monex allow US persons to trade in Japanese stocks, but not in US-based ETFs. Nomura, SMBC Nikko and Daiwa allow US persons to open accounts, and also to trade in US-based ETFs.

In general, to determine whether a brokerage is willing to open an account for a US person, and if so, what kinds of restrictions it may place on a US person's activity, do a google search on the term "米国籍 site:????", where 米国籍 means "US citizenship" and "????" should be replaced with the brokerage's home page URL.