TOKYO Japanese households get a chance this week to vote with their $8 trillion in savings on the success of Prime Minister Shinzo Abe's economic policies with the launch of tax-free investment accounts aimed at driving money into riskier assets, including Japanese stocks and overseas mutual funds.
Over 3 million Japanese have filed applications for the tax-free investment accounts dubbed NISA, for the Nippon Individual Savings Account. Banks and brokerages can begin opening accounts from Tuesday and the tax-break scheme will be implemented from January.
Japan's government projects NISA accounts could draw more than $250 billion by 2020. A survey by Nomura Research Institute projects a bigger wave of investment - between $280 billion and about $690 billion over the next five years.
In anticipation, Japan's mutual fund market has exploded with new offerings. In September, a total of 127 new investment trust funds were launched, the highest tally for a single month since December 1998, according to the Investment Trusts Association of Japan.
The government-sponsored investment plan modeled after Britain's individual savings accounts will provide a five-year tax holiday on dividends and capital gains provided the money is invested in stocks, mutual funds or exchange-traded funds.
Investments in Japanese government bonds and corporate bonds do not qualify, a step intended to push Japanese savers out of the shelters they have favored over 15 years of deflation and economic stagnation.
Securities companies have begun to market the NISA accounts heavily in hopes of winning over a new market of younger investors who may have a higher tolerance for risk.
Mrs. Watanabe - the composite character invoked as a stand-in for Japan's retail investors - has played it safe. About half of the $15 trillion in assets of Japanese households remains parked in low-yielding bank and postal savings deposits.
Fund managers have high hopes that the NISA accounts could provide an opening to start moving that overhang of risk-averse savings. Under the NISA plan, anyone over 20 can invest up to the equivalent of $10,200, or 1 million yen, each year.
The success of the program is also a test for Abe, who has pushed steps to keep Japan's economy and incomes growing even as the government prepares to raise the consumption tax in 2014.
'TIMING LOOKS GOOD'
"The timing looks good for NISA with economic fundamentals looking brighter," said Daiji Nakata, general manager of retail business planning at SMBC Nikko Securities. "Things would have been different last year when stocks were slumping."
The Nikkei stock average .N225 has posted the best performance in dollar terms of any major market since the start of 2013, up 23 percent. In yen terms, the index has gained almost 40 percent.
Despite the outsized gains, Japanese investors have remained sidelined, said Guy Henriques, president and representative director of Schroeder Asset Management Japan.
"The huge majority of money has come from outside Japan. Japanese investors have not yet started buying Japanese equities," he said. "They will do, I'm sure."
In 2012, foreign investors bought a net 2.8 trillion yen in Japanese stocks. Japanese investors were net sellers of 1.9 trillion yen.
That reflects the entrenched thinking of Japan's recent deflation, analysts say. When prices were falling, investors holding cash were guaranteed a real return. If the Bank of Japan succeeds in pushing inflation to its 2 percent goal, investors would start to see the value of cash erode by the same margin.
Ryoichi Kumazaki, 26, was one of about 1,000 individual investors who attended a NISA seminar in September sponsored by Nomura Securities. He said he would invest as much as $8,000 next year in the new accounts, which formally launch in January.
"I'm concerned about my future," Kumazaki told Reuters. "I will be able to take some risks since I'm single and more flexible now."
(Additional reporting by Tomo Uetake, Taiga Uranaka and Emi Emoto; Editing by Kevin Krolicki and Neil Fullick)