Stock Trading in Japan

I’ve written briefly about buying stocks in Japan some time ago and gave up tracking my progress since I’m no good as a swing trader, so I decided to get good stocks and hold for the long-term.

Interestingly, one of my Japanese friends has been using a stock broker for many years and asked if I was trading stocks. When I told him I was using online trading tools and that it can cost as low as 100 yen (excl. tax) to make one trade, he realised how much unnecessary money he’s been paying his broker.

While I’ve mentioned before that I had been using Monex (and still am), I would recommend SBI Securities instead (with which I also have an account). The reason being, SBI has better tools available, doesn’t cost that much more, and has a lot of IPOs that you can participate in.

Regardless of which securities company you decide to open your account with, there are typically 3 types of accounts to choose from:

  1. 一般口座 (General Account)
  2. 特定口座(源泉徴収あり)(Specific Account – with Tax Withholding)
  3. 特定口座(源泉徴収なし)(Specific Account – without Tax Withholding)

For 1. General Account, securities companies do not prepare your annual trading records. So in the event you make over 200,000 yen in profit in a year, you will have to do up your trading records by yourself to file your taxes. Put simply, there is basically no benefit in opening a General Account but because government and corporate bonds are only available through the General Account, there are people who use them.

For 2. Specific Account – with Tax Withholding, securities companies prepare your annual trading records for you, so you do not have to prepare them. With every profitable trade you make, 20% of your capital gains will automatically be taxed, hence you do not have to file your taxes separately. This is especially useful for people who make a lot of trades and profits and do not want to be bothered with the taxes. However, remember that if you make less than 200,000 yen profit in a year, you are not required to report those capital gains since they don’t have to be taxed. But with this type of account, you will be taxed that 20% regardless of the amount of profit you made. And no, you will not be refunded the full sum if your total profit is less than 200,000 yen because what does not have to be taxed does not mean it cannot be taxed.

For 3. Specific Account – without Tax Withholding, securities companies prepare your annual trading records for you as well, so you do not have to prepare them in the event you need to file your taxes. And the best thing about this account is, capital gains are not taxed automatically, so you only have to file your taxes at the end of the year if you make more than 200,000 yen. Otherwise, you can keep the full sum (less local and residence tax). But the downside is, you’ll have to file it yourself if you do make more than 200,000 yen in a year and if you expect to do that every year, then this can be a hassle. But it is still better than the General Account because all you have to do is to use the annual trading record prepared by the securities company.

Overall, I strongly recommend applying for #2 if you expect to make over 200,000 yen in profit every year, and #3 if you don’t.

Next, make sure to also open the NISA account and do your trades on that account as much as possible. The account is available for use for up to 5 years and profits from up till 1.2 million yen worth of shares are not taxed. When the account expires, all your stocks will be automatically transferred to one of the 3 accounts mentioned above that you chose. So, the thing to consider when that time comes is if you intend to sell the stocks to get the profits, make sure to do it while it’s still under NISA to make use of the tax break.

Finally, if you were to open the SBI account, make sure to also apply for the margin trading (信用取引) account as well. I’m not suggesting you do margin trading because that is your own responsibility. Because to trade on SBI, you’ll need the Hyper SBI tool. Opening an account with SBI allows you to use the tool free for 1 month. After that, you will have to pay to use it. However, just by opening the margin trading account allows you to use the tool for free indefinitely, even if you never ever perform margin trading.

I haven’t been trading much the last several months due to some changes in my plans and haven’t made use of my SBI account, but I intend to do so this year to fully utilize the NISA account.

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