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:
- 一般口座 (General Account)
- 特定口座(源泉徴収あり)(Specific Account – with Tax Withholding)
- 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.
What would you consider “good stocks” to hold for the long term? I think there is also one more benefit of NISA which was not mentioned, which is the ability to purchase shares of Japanese companies in units of 1 share instead of lots of 100 or 1000. This becomes significant if you are considering a company with a 10000 yen share price.
A question I have regarding NISA is whether the benefits apply to non-Japanese stocks as well. I have the impression that they are not but it is merely an impression.
I mainly buy stocks listed on the 1st Section of the Tokyo Stock Exchange and check their performance over the last 3-5 years to see if they are growing. A “good stock” to me would be one with fairly low PER and PBR respective to their industry and have a strong management team. I’ve been interested in some major IPOs the past many months but during the time two of those that I was particularly interested in were listed, I didn’t have enough reserves to participate in them =\ Nevertheless, I’m pretty satisfied with the performance I’m seeing so far.
I never knew that you could buy in units of 1 share through NISA so that’s very valuable information! Regarding your question, I just went to take a look at my SBI account and I am able to purchase overseas stocks under NISA as well. Just have to make sure I check the radio button “NISA預り” when I place the buy order.
I am not investing for capital gains so I do not know if this will be useful to you, but my better performers come from already well established companies. These include Sekisui House, Kao and Itochu.
As for life after NISA, I think residents of Japan should consider investing in US stocks instead. There are not only way more “blue chip” companies, but dividend (10% as opposed to 20.315%) and capital gains taxes (0% as opposed to consumption tax) are also a lot more attractive.
Thank you for helping to clear up the misconception I had about NISA.
In that case, may I ask what is your reason for investing? I made a lot of poor decisions early in my investing days as I was trying to do swing trade. My main performers were ANA, Mitsui, and Mizuho and among those, I only hold Mizuho now. I used to have Sharp, which I bought just a few days before Foxconn officially announced their decision to buy them out, but the price didn’t jump after the announcement and I wasn’t patient enough to hold out so I sold it for some negligible profit; and JAL, which I sold at a loss but nothing too major so it didn’t eat into my capital.
Interestingly, I was considering US ETFs and was reading the document on SBI which is now a little confusing to me. From what I understand, the document says dividends will be taxed 10% in US + 20.315% in Japan (effectively 28.284%), while capital gains are taxed 20.315% in Japan only. Am I misunderstanding the document?
I think it sounds a bit farfetched, but I am investing for dividend income and growth. I am looking for this income to complement my pension payout, assuming I receive it. Since I am looking at dividend income, I am planning to buy and not sell, although selling will be done if better opportunities are found or adjustments are made.
I am not using a Japan based brokerage so I cannot comment on how taxes are handled, but the one I am using, which is based in the US, has only taken 10% of my dividends away. I have not been taxed for capital gains. If SBI collects taxes the way you described, it is probably not worth it to invest in US stocks.
I see. Do you mind sharing about your brokerage?
I am using Interactive Brokers. Do note that there is a monthly commission unless certain conditions are met.
Hmm, sounds a little complex.
I’ll go read it up, thanks!
No problem. Feel free to ask me anything.
Hmm, correct me if I’m wrong, I took a quick read and my understanding is that the total of your trade commissions + Standard Activity Fee will be at least US$10 every month ($20 if you hold less than $2,000 worth of shares). Since I don’t intend to trade actively, the fixed plan seems better. But to not pay the activity fee, I will have to trade at least 10 times or buy 2,000 shares a month to hit the minimum fee. Otherwise, I will just have to pay the $10 (or $20) even if I don’t trade at all for the month. All these + the minimum $10,000 deposit.
Thinkorswim charges $10 per trade (a little expensive), but there’s no minimum deposit or any other requirements (like the $2,000 in equities). If I only trade once a month, that’s pretty much the same as using Interative Brokers. And on months I don’t trade, I don’t incur any fees.
If you trade more than once a month, then I see the benefit of IB. Otherwise, do you see any strong benefit of IB over Thinkorswim that I’m missing out on?
Teach me how to trade here too!
Unfortunately, I do not have information about trading in Singapore. The only thing I know is that you’ll need a CDP account and a brokerage, which you can get through many of the major banks like DBS (Vickers), UOB (Kay Hian), OCBC (Securities). Since I have no income in Singapore, I don’t think I’ll be trading there anytime soon. There are surprisingly more young people who are buying stocks than it appears, so ask around, I’m sure someone among your friends is doing it.
I am unable to reply to the thread any further so I will answer your question on Interactive Brokers on a new one.
I think you have gotten everything right. I cannot comment on ThinkOrSwim because I have not taken a detailed look at it. I am using the fixed tier pricing structure since I do not make more than a few trades per month. Regarding the US$10k deposit, you can first make a deposit to activate your account before transferring the funds back to your bank account if you need to. I tried it when I just started with IB so I know it works.
One merit about IB is that they offer free withdrawals once a month. You have to pay for the incoming telegraphic transfer fee (S$10 for DBS) though. Another thing you might want to take note of is the necessity for foreign exchange. You will have to make several currency exchanges over time and each of them count as a trade, so your commissions might pile up faster than you think. Finally, if you were to think long term, your portfolio is bound to exceed US$100k someday. Of course, it is also possible to start off with ThinkOrSwim and then make the switch to IB upon reaching the US$100k mark if you are very sure that your savings on commissions will be greater that way.
Yea, WordPress has a limit to the max. number of replies per thread. I’m guessing it’s in consideration for display on smartphones, although at 10 replies it already is quite difficult to read on my phone.
Thanks for the information. I’ll need to go read up on how the currency exchanges are charged in more detail.
I still think it doesn’t make sense to be made to pay US$10 every month even when I don’t trade. Like this last many months, I haven’t been investing in stocks so it is a little painful to think that I still have to pay the fees. It seems that TOS has reduced their fees to around $7 per transaction, but again, they charge $75 per withdrawal of funds from your account so it’s something I’ll have to think about. For the time being, I’ll make my buys through SBI’s NISA account since I won’t get taxed in Japan at least for the next 4 years of my remaining NISA eligibility period.
Regarding the S$10 fee for DBS though, I suspect it’s not telegraphic transfer fee but USD handling fee. Some of my freelance work pay me in USD even though the company is in Singapore and DBS charges me S$10 for each transfer as well. But I do not get charged for those that pay me in SGD.
Thanks for the valuable information. I am a Canadian, soon-to-be-one-year in Japan, working in Japan. I really want to start investing in Japan. Though my Japanese is almost non-existent. Do you know if I can manage to still use SBI securities?
Hi framboise,
As far as I know, the application forms and websites are entirely in Japanese so it might be difficult to place orders and get through the ocean of Japanese text without understanding much Japanese. Unfortunately, Japanese content are still largely text-based.
I have used Kabu.com NISA account for 3 years. No problem with the platform but very curious about the order process. I buy mainly ETF’s and after placing an order, unless the quantity is very small, they almost always make my trade in small lots – 10-20 shares per lot. This means that often orders do not get completely filled. eg yesterday ordered 110 shares but they only filled 90. Can anyone explain this odd behaviour. Thanks.
I haven’t really tried purchasing ETFs and I haven’t used Kabu.com before but is the ETF you are trading sold at units of 10 shares per lot? If I were to venture a guess, it might be due to the lack of trading activity. Meaning, you may want to buy 110, but not enough people are selling it so they could only get you 90?
One possible explanation I agree But an odd way to operate. I have ordered 50 shares before and they complete the order but in 2 or 3 lots. Very strange after UK where a quote is requested and if you accept it then the order is filled.