Ever since the Federal Reserve first got into the business of blowing massive equity bubbles back in the 1980’s, Americans have shown a willingness to happily, if ignorantly, embrace each successive iteration to the rigged market. Of course, as E-Trade recently confirmed via the following ad, making money in equities is a very simple two-step process: (1) get invested, (2) buy a yacht made of Cuban mahogany and party with models…why would anyone in their right mind pass that up?
Unfortunately, at least for the central planners at the Bank of Japan who would love to be as efficient at creating asset bubbles as their U.S. counterparts, Japanese investors have a slightly longer memory than U.S. investors and have shunned stocks ever since an entire generation of wealth was wiped out in the 90’s. After 20 years of stocks pretty much only trading in one direction, one can understand their concern.
Moreover, given the chart above, perhaps it’s not surprising that millennials in Japan use the words “Risky”, “Gambling”, “Scary” and “Loss” most frequently to describe the idea of “investing” (chart per the Wall Street Journal).
All that said, as the Wall Street Journal points out today, with an aging population and trillions of dollars worth of pension promises about to come due, Japan’s central planners have no option to double down on efforts to convince millennial investors to once again throw all of their money into the Nikkei slot machine.
If anything can persuade Japanese to invest, it may be fear rather than greed. The government’s debt, more than twice the nation’s annual output, has fanned doubts about whether promised pensions will be forthcoming decades from now.
More than half of Japan’s household wealth sits in bank deposits or cash under the mattress, according to the Bank of Japan, compared with 14% in the U.S.
“We have to increase our assets. Otherwise we cannot survive in a super-aged society,” said Satoshi Nojiri, director of the Fidelity Retirement Institute in Japan.
Luckily, there is even a new Robot, Theo, who will take your monthly deposit and gamble invest it for you. Theo was created by a company called Money Design whose ‘business strategy’ is centered around targeting “smartphone users accustomed to playing games on their phones”…you know, because if you can play Angry Birds on your iPhone then you can definitely be a rock star investor.
Money Design has a smartphone app, Theo, that aims to appeal to a cautious generation of investors accustomed to deflation. If it can unlock Japanese savers’ appetite for stocks with a click or a swipe, it would succeed at what many in Tokyo have found a nearly impossible task.
Nao Kitazawa, a former Morgan Stanley investment banker who helps run the startup, called Money Design, does his best to distance himself from the past, with his New Balance sneakers and black T-shirt. His target is smartphone users accustomed to playing games on their phones.
“We’ve tried to make our service cool, sharp, new,” said the 42-year-old entrepreneur. “We’re getting rid of some of the stiff formality of meeting with brokers for an hour during lunch time.”
The Theo app pitches a small starting investment of around $100 a month, with a robo adviser selecting model portfolios based on the investor’s inflation expectations and risk appetite. Fees come to 1% of assets annually.
“We want to provide an alternative to a bank deposit,” said Money Design’s Mr. Kitazawa.
The business is still small: Since starting in February last year, Theo has drawn in 18,386 accounts and $106 million in assets under management as of the end of September 2017, with about half of clients in their 20s or 30s.
Of course, efforts to get millennials in Japan to invest are nothing new and the latest such efforts even include tax exempt brokerage accounts for people willing to gamble just $3,500 per year…
Efforts to attract new blood have fallen short before. The government a few years back created a tax exemption for small brokerage accounts in hopes of getting people to dip their toes in the market. Not many did, and government figures show half the accounts are inactive.
This month, the government started taking applications for a new program that will start next year and be available at major brokerages. Officials said they have streamlined the process and lowered the minimum investment a year to ¥400,000 (about $3,500) from ¥1.2 million, while allowing tax benefits to last longer.
To Japanese policy makers, stock investing isn’t just a personal choice. Bringing a new crop of risk-taking investors into the market, they say, could in turn encourage more risk-taking entrepreneurs to create the kind of companies that are driving the U.S. economy.
Getting money to flow into stocks could “contribute to economic growth eventually,” a Financial Services Agency spokesman said. “Then we hope that through long-term, regular diversified investments, people can share the success of the securities market.”
…The desparation almost feels like a comp from a casino way off the strip in Vegas…”free” meat loaf dinner for anyone willing to gamble away their mortgage payment this month!
Of course, up until this morning it looked as if Japanese investors were once again getting excited about investing…and then this happened:
So what say you? Is this just a temporary blip or is a fragile Japanese investor base once again preparing to “sell the rip.”