Bogleheads:Sandbox

Testing.... Investing in Japan

Index funds available:

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 ACWI: All-world ex-Japan

MSCI Kokusai: Developed world ex-Japan

MSCI Emerging Markets

Expense ratios are generally higher for the older ones, 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:

VT: Vanguard Total World Stock Index

VSS: Vanguard FTSE All-World (ex-US) Small-Cap Index

VWO: Vanguard MSCI Emerging Markets Index

VTI: Vanguard Total (US) Stock Market Index

VOO: Vanguard S&P500 (US) Index

VB: Vanguard Small Cap (US) Index

VPL: Vanguard MSCI Pacific Index

VGK: Vanguard MSCI Europe Index

BND: Total (US) Bond Index

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.

Bonds: Bond index funds in Japan tend to have somewhat higher expense ratios than stock 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 DHAM Foreign Bond Passive Fund (DIAM 外国債券パッシブ･ファンド) (unhedged), with an expense ratio of 0.53%.

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. --PFICs 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. --Account access The US taxpayer living in Japan has limited options for opening brokerage accounts. US-based brokerages As of this writing, the only US-based brokerage which is willing to open an account for a US person with a non-US address is Schwab, which offers the Schwab Global account, with a $25,000 minimum 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.)

Resources:

--Japanese Morningstar: http://www.morningstar.co.jp

--ETFs trading on the Tokyo Stock Exchange:

http://www.tse.or.jp/rules/etf/list/b7gje6000002e7z2-att/ETF_A3_1211.pdf (Japanese)

http://www.tse.or.jp/english/rules/etfs/list/b7gje6000000y0tm-att/b7gje6000000y0ue.pdf (English)

--Vanguard Japan: https://www.vanguardjapan.co.jp/content/index.shtml

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