GoldenGoose

Author: Administrator

  • Should I pay down debt first, or start investing now?

    The Rule

    There are three components of any investment:

    1. The Risk
    2. The Expected (or average) Return
    3. The Taxability

    You often hear about “Risk vs. Return”, but the actual return you get is of course affected by taxes.

    Investments

    When you make an investment, you are taking some amount of risk (at least in the short term) with the expectation that you will make gains.

    For example:

    1. You could put your money into a savings account at around 0.33% that’s practically nothing, but the risk is very low. Even if the bank failed, the government would step in and make things right. The main long “term” risk is that interest rates might get even lower.
    2. You could put your money in something like the S&P 500. Here the expected returns are much higher (based on historical data), but short term returns are quite variable. You could easily have a large loss in your first year of investing. Your overall effective risk lowers as time goes on, but it doesn’t reach a theoretical zero chance of losing money until you get to around 20 years. What’s more, if you are investing in US Dollar based securities from Japan, you also have exchange rate risk. Still, you can expect an overal average of something like 7% after taxes.
    3. If you invest in the stock market in Japan, you might be able to expect something like 3-4% dividend income from high dividend stocks, which would be a bit less after taxes.

    The point here is, you have a range of options, but the higher of a return you want to chase, the less certainty you will have.

    Debts

    The same is true from the bank’s point of view. If they lend money for a mortgage, it’s relatively low risk since they could always sell the house. If they lend you money via a credit card loan, well that’s high risk since you might decide not to pay it back.

    From the bank’s point of view, they should charge more when loaning money to riskier borrows, and they should charge less when the loans are secured.

    Sadly, though, from your point of view, your bank loan is “risk free” in the sense that there is pretty much zero chance that the bank will say “Oh you don’t have to pay as much this month”.

    They may count your loan as risky because they don’t know 100% if you will have the will and ability to pay – but your obligation is to pay in full, on time, every month, like clockwork.

    What this means is that if you have a credit card balance at 12%, a student loan at 6%, a housing loan at 1%, and a shopping loan at 1% – they are all “risk free” because you know how much you will owe, and when. The only real risk is that the interest rate might change.

    Debts as Investments

    You can think of debts as investments with negative returns. Your 6% student loan is an “investment” which returns -6%, risk free.

    Paying down your debt, then, is reducing the balance of your -6% investment, and when compared to your current situation, is almost the same*1 as investing in a risk free product at 6%.

    This is because paying down 10,000 yen of this 6% loan has almost the same effect as investing in an offsetting financial product that earns 6% risk free.

    Example:

    For the sake of simplicity, let’s say interest is calculated on your average balance, charged or paid at the end of the year, and compounded yearly. We’ll also assume a world with no taxes.

    For every 10,000 yen of your loan, you will owe 600 yen at the end of the year.

    For every 10,000 yen you invest, you will make 600 yen at the end of the year.

    Scenario 1:

    You owe 20,000 yen, so you end up owing 1,200 yen.

    Cash Flow : -1,200 yen

    Scenario 2:

    You owe 20,000 yen, so you end up owing 1,200 yen.

    You invest 10,000 yen, so you end up making 600 yen.

    Cash Flow: -600 yen

    Scenario 3:

    You owed 20,000 yen, but you paid down 10,000 yen at the end of last year, so now you only owe 10,000 yen.

    Cash flow: -600 yen

    Summary

    You can see here that the end result of paying down your loan by 10,000 yen is the same as keeping your 20,000 yen loan and investing 10,000.

    Where things go wrong: Risk & Taxes

    Many people understand this to some extent and say “Well investing can make sense when when I have debt, so long as the investing returns are higher than the interest rate on my loans!” In effect, they ask themselves “Why should I pay down my 3% student loan when I could invest that money in the stock market where I could get 10%?”

    Fair though, but there are two problems:

    Risk – As mentioned above, the debts you owe are effectively risk free, except for interest rates in many cases. Paying them down is in effect investing risk free. So, the choice between paying down your student loan debts or investing in the stock market isn’t a simple 3% vs 10% question, it’s a question of which is better: 3% risk free vs. 10% with high risk.

    Taxes – In the example above, we ignored taxes, but leaving aside mortgages and business loans, interest on most consumer loans is not tax deductible. Investment income, on the other hand usually does have taxes taken out. Assuming you are investing in a NISA account, you may be able to avoid this up to certain limits. Nevertheless, if you are comparing paying down a 3% debt vs a 10% pre-tax investment return, the real choice may be between a 3% risk free investment vs. a high risk investment with a 6-7% post tax expected return.

    Comparison with other risk free investment alternatives

    Normally, you might have the following choices for risk free investments.

    1. Bank Accounts – Less than 0.5% return
    2. Term Deposits (1 year term) – <=1% return
    3. Japanese Government Bill (1 year term) < 1.5% return
    4. Japanese Government Bonds (10 year term) < 3% return

    All of these returns are nominal pre-tax numbers.

    As of the time of this writing, even if you buy a 10 year government bond, you will only get a 2.785% return. This is the highest it’s been in over 10 years, but still quite small compared to most consumer debt.

    So if you pay off a 3% student loan, you can get a better effective return than you can get even by investing in 10 year government bonds.

    Not only that, but if you have credit cards, of other consumer debt, chances are you owe 6%-14% APR.

    This means your choice comes down to “investing” in paying off a 6%-14% loan, tax free and risk free, or trying to make that much risk free which is … completely impossible.

    The Bottom Line

    For any loan with an APR above about 4%, paying down the loan instead of investing in a risk laden financial product that will likely return less after taxes is the obvious choice.

    *1 I say “almost”, because there may be differences in compounding periods, methods, interest rate adjustment timing, etc.

    Mortgages

    The situation with Mortgages is a bit murky. With the average home loan interest rates still under 1%*3, and the fat that home loan interest is generally tax deductible, things are a bit less clear cut than the consumer debt examples above.

    The expansion of the Shin NISA program which enables tax free investment opportunities for amounts on par with some home loans swings things even farther towards the investing side.

    For example: Paying down a 1% home loan may save you less than that 1% since it was tax deductible. At the same time, if you were lucky enough to get an average of 8% in an index fund in your NISA no taxes need be paid on that gain.*2

    This means you might be weighing a 0.7% risk free return vs. a risky 8% return. Here, the risk vs. return trade-off seems very reasonable.

    Still, if you suddenly lost your job during an economic downturn while the stock market is in a bust cycle you may well wish that you had paid off your mortgage before investing in risky assets.

    The main point is this: Investing in stocks, gold, bonds, etc. is really not defensible if you owe any kind of consumer debt such as credit cards, etc. Mortgages are typically much lower interest rates and tax deductible, so considering your options is a sane thing to do.

    *2 In Japan, at least. Some funds pay taxes overseas first before distribution.

    *3 My choice of words here is intentional. Property investment loans tend to be well above 1%, currently hovering around 2.5%.

    The Exception

    If your place of work has a 401k (or other DC plan) with matching contributions, then for every 10,000 yen you invest, you might be getting an additional 10,000 yen from your employer. Add this to the tax deferment feature, and suddenly you might be able to get 20,000 per month added to your DC account while your paycheck is only dropping 6,000-7,000 yen. That means an immediate and roughly a 300% return for the amount you invest each month.

    I would invest in any account with matching to the maximum allowed before paying off low interest loans, assuming my cash flow situation was stable.

    Bear in mind, though, that 401k accounts in Japan can not be withdrawn from, borrowed against, or liquidated except in exceptional circumstances. I would be ironic if you were missing credit card payments while you had millions of yen in the bank that you couldn’t touch.

  • How do we “know” the stock market will continue to rise?

    I spoke in my last post about how the stock market is essentially a bet on the progress of humankind. I believe that companies out there will continue to innovate and provide value to individual customers and society in general, but let’s look at the statistics.

    I believe that statistics is one of the most underutilized and underappreciated branches of math – in fact any field of study. You will hear people say things like “I don’t know why they made me study calculus in high school, I never use it in real life as an adult”. Fair enough, but you do use statistics – at least you should.

    I remember a project at work where a some was asking me how much data they thought we should check. We had many thousands of records, so we couldn’t verify all of it manually. On the other hand, it seemed obvious that we couldn’t just check 10 random records and assume everything would be okay. I told them “Well it depends how sure we want to be”. They looked surprised and asked me “What do you mean?” I replied “Well, so you want to be 90% sure? 95% sure? 99.9% sure? I can estimate how many records we would need to check for each of those”. Despite having a college education, they were mystified by this.

    The truth is that statistics can be applied almost anywhere. How many days will it rain next summer in Tokyo? How many car accidents and earthquakes will there be in 2027? And yes, how will the stock market do? Even large language models and other forms of AI are basically based on statistics. Which word is likely to follow the last one given the context? It’s used in the medical field, too. What are the chances you will develop cancer in the next 10 years? How does this change if you are a smoker?

    Basically, the way we make statistical predictions is like this:

    1. We observe the behavior of a system and collect data
    2. We look at the characteristics of this data and create a model
    3. We use the model to predict future behavior

    Statistics assumes in many cases that things are random, but most things are.

    Diffusion

    Take an example: You pump air into a tire. The average pressure and temperature increase. Technically, the pressure and temperature don’t need to be even – but in practice they are. Why? The air molecules bounce around chaotically and everything evens out in short order. The movement is random, but there are so many molecules that the transfer is nearly instantaneous. We don’t find situations where all of the air molecules are on one side of the tire – even though it is theoretically possible, it’s so unlikely that it never happens.

    A similar thing happens if you place a drop of food coloring into a glass of pure water. It quickly spreads until after just a few seconds the entire volume of water has the same pale shade of color. Again, theoretically this need not be the case, but there are so many molecules of water and dye and so much thermal energy making them bounce around randomly that the randomness wins in short order.

    If you were to make an equation to describe this, it would have a curve such that the chances of everything evening out almost perfectly would be very close to 100%. It will actually never be perfectly mixed since things are always in motion, but the chances of it getting very far away from perfect are very, very low.

    The law of large numbers

    Say we take something that doesn’t have millions of chances to interact, like a coin flip. A single coin flip should have almost a 50% chance of landing on heads, and a 50% chance of landing on tails. If you assume the coin is perfectly balanced and never lands on it’s side, then the percentage would actually be exactly 50%.

    Still, if you flip a coin twice, there is a reasonable chance that you could get two heads in a row, or two tails in a row. In fact, there is a 25% chance.

    When you get to the third flip, the chance drops to 12.5%, and with the fourth flip, it drops to 6.25%. By the time you get to 10 flips, the chance is only 0.09766%, or 1 in 1024. Make this 20 coin flips, and the chance is 1 in 1,048,576. So is it possible that you could flip the coin 20 times and have it land on heads every time? Sure. You’ll probably never see such a result, though. If you don’t believe me, just try it!

    This is called the “Law of Large Numbers” and is related to “Reversion to the mean”. It’s simple: The more trials you have, the more likely you are to align with predictions based on the statistical model you have (assuming it’s correct).

    A trip to the casino

    The same concept applies when you are at the casino: You might play the slot machine one time and win the jackpot. It’s unlikely, but it could happen. You also might put coins into the machine for an hour and never get a single payout – but that’s equally unlikely. Casinos tune their machines so you win just often enough to keep playing and lose your money slowly, so they payout ratio might be something like 0.99 – in other words, you get back 99% of your money. This means sometimes you get back more than you put in, and sometimes you get back less – but on average it will be 99%.

    The average doesn’t tell the whole story though. Imagine two different scenarios:

    1. For every 100 coins you put in, none of the coins pay out until you get to the 100th coin – then 99 coins come rushing out. This would have an average payout ratio of 99%, and also if you only look at trials of 100 coins, would always pay out 99% of what you put in. There would be zero variance.
    2. For any coin you put in, there is a 99% chance a single coin will come out – but more than one coin never comes out. You could very easily have the case that you put 100 coins in, and 100 coins come out, and also have the case where you only get 99 coins, or 98 coins, etc. As the number of coins goes down, that scenario becomes increasingly unlikely. The case where you get 0 coins back is technically possible – but practically impossible.
    3. For any coin you put in, any number of coins could come out. Maybe 0, maybe 1,000,000 – but the long term average is that you will get back 99% of your money. You might put in 1 coin and get back 100 sometimes, or you might put in 10 coins and get nothing. Both are very unlikely.

    All of these scenarios are the same in that if you put in 1000 coins, you should expect to get 990 out on average, but the level of certainty is very different. In the first scenario, you are guaranteed to get 990 coins. In the last, you are actually unlikely to get exactly 990 coins. You might bet 800 this time, and 1100 next time, but if you did thousands of trials, the average would converge on 990 coins.

    Clearly the “average” doesn’t express all there is to know, so we usually use a combination of the average and the variance, expressed as standard deviation. I won’t get into the details, but just know that the larger the standard deviation, the more variance you can expect.

    One last example: Average height

    We know that different people are different heights. If the average height of men is 175 cm, then that means if you measured the height of millions of men and averaged the results, you would get a result of 175 cm. Generally, the farther you get from this average, the less likely it is. For example, if you take a range of 170-180 cm, it may be that 85% of men fit into this bracket. If you change the numbers to 165-185 cm, perhaps 95% of men fit into the bracket.

    In the case of height, extreme case are not really possible. We can say with confidence that no men are ever measured to be 10 cm or 3 m. Not only have we never measured such a person, but we know it to be biologically impossible. Such limitations don’t exist with things like coin tosses or diffusion, but when you are far enough away from the average, it doesn’t really matter.

    The “Normal” distribution

    I think everyone is familiar with the so-called “Bell curve” which was often used to adjust the scores when grading exams.

    The idea is this, some people will always do better than average, and some will always do worse – but there will always be an average, and there will always be people who aren’t exactly average. The farther away you get from the average, the fewer people you expect to get that score.

    For example, if the average score is 80%, you might expect that few people get 100% and 60%, and still fewer people get 0%.

    Professors manipulated test scores to fit this distribution in order to account for differences in test difficulties. For example, if the average score was 95%, then they may decide the test was too easy, and so therefore 95% shouldn’t indicate an A, it should indicate a C.

    Likewise, if the average test score was 60%, then 60% shouldn’t be a D, it should be a C.

    Scaling the score linearly would probably work fine (and I suspect that’s what many professors did), but making it fit the normal distribution is theoretically better, since it is thought that test scores are in fact normally distributed when the sample size (number of test takers, in this case) is large enough.

    This assumption may be incorrect, but it was believed to be true because so many phenomenon follow such curves.

    A normal distribution is a statistical data distribution where data is evenly distributed around a central mean, and this happens most of the time in nature. It also seems to happen with most data from the stock market. That is, stock market data when viewed in volume seems similar to random patterns found in nature.

    But what does standard deviation actually mean?

    Well, if you assume bell curve mentioned above (which we normally do), then 68.2% of all data falls within one standard deviation of the average (mean). For two standard deviations, the number is 95.4%, and for three standard deviations, the number is 99.7%.

    For a real world example: You might say the S&P has average annual nominal returns of 10% and a standard deviation of 15%. That means that based on this model, for any given year the expected return is 10%, but there is a 68.2% chance that the returns will fall between -5% and 25%.

    Two standard deviations is 30%, so that means that there is a 95.4% chance that the return for any year will be between -20% and 40%.

    Three standard deviation is 45%, so there is a 99.7% chance that returns will be between -35% and 55%.

    That’s a pretty wild ride, but it’s a good indicator. There is only a 0.03% chance that you will lose more than 35% or gain more than 55% in any given year.

    Put another way, standard deviation quantifies how far returns deviate from the average. The bigger the number, the more variance.

    How valuable is a model based on past data?

    I should note at this point, there are two ways to create a model:

    1. Create it from scratch, based on what you assert to be true. This is what we did for our coin flip experiment. We decided ahead of time that the chance on landing on heads for each coin flip was 50%
    2. Measure it from data in the real world. This is what we did for the men’s height experiment. We don’t know ahead of time what the average or standard deviation “should” be, we just collect data and analyze it to find these numbers.

    With the stock market, we need to look at the actual data and come up with a model for practical purposes. There are limitations to this, the main one of which is: What time period should we use?

    The time period connundrum

    Looking at the S&P 500, there is data since 1926 – That means nearly 100 years of data! There is also 77 years of data for the Nikkei 225.

    That’s a lot of data, and in general, the more data the better. For example, in determining people’s average height and the standard deviation in height, the more data we collect, the more accurate our model will be.

    But… in many countries, the average height has been increasing over time.

    Statistics from MEXT show that the average height of a 17 year old boy was 160.6 in 1926, and 170.8 in 2024. That’s over a 10 cm difference in average height in just 98 years.

    What data should you use when creating a model for male height in Japan? Should you include all of the data since 1926? Should you include only more recent data? If so, how many years?

    In the case of height, the trend rises from 1926 until around 1985, and then seems stable from there – so I would use data from 1985 or so until now. This is because in the case of height, we know there is a clear trend, and we also know that causes likely include things which aren’t likely to reverse – like better nutrition.

    With the stock market, though, it’s less clear. For example, the average returns of the S&P 500 for the last 2 years have been well above 10% – but such a short term numbers tell us very little.

    If you just look at the time period when COVID happened, the declines were rapid, and if you calculated standard deviation based on that alone, it would be 80%.

    Likewise, if you calculated the standard deviation around the time of the Lehman Shock, it would be over 40%.

    Which of these number is “right”? Well, probably none of them is exactly going to predict the future precisely – that’s the nature of random occurances.

    The real question to ask yourself is “Has the basic nature of the market changed?”

    Looking back, it seems clear that the advent electricity didn’t change things as drastically as one would think. In hindsight, neither did the Internet, 5G, of cryptocurrency. Businesses still exist: Manufacturing, farming, mining, you name it – they existed back then and will exist in the future. If something like smart phones or AI makes them more efficient, great. If not? Well they won’t be adopted.

    The fundamental nature of business hasn’t changed. The equation is still Revenue – COGS = profit. Based on that, I see no reason not to use the full history of data at our disposal.

    If we do that, then we can be fairly sure that average returns will stay somewhere above 7%, and the long term standard deviation is something like 15% – 17%.

    Decline of the American Empire and USD

    But what if you think America (or Japan) is in decline? What if you think the USD or JPY will be worthless in a decade.

    Well, it’s certainly not impossible. In the past France, the UK, Spain and Japan had empires, but the influence of all has faded over time. Rome was once the center of the universe as far as anyone is concerned, but that’s clearly not the case now.

    Japan has dropped in the GDP rankings recently, but that isn’t necessarily bad for Japanese companies. In fact, the falling Yen is good for exporters. Likewise, the situation in the United States is complicated to say the least. Various structural problems have been looming for decades, while the national debt continues to climb in both the US and Japan.

    It’s not unthinkable that the relevance of Japanese and US companies fades over time with the rise of China, India, and Africa. In the short term, it’s also completely possible that the next blockbuster drug comes from a European or Korean drug company.

    It’s true, investing outside of Japan shouldn’t mean just the US. The US may be the largest market in the world right now, but that may shift long term.

    For example, the US had a GDP of $31.82 trillion USD in 2026, while the EU had $22.52 trillion. The means that the US economy was 41% larger than that of the EU – but the EU has actually been growing faster, so in a decade or so, the GDP of the EU may surpass that of the US.

    All of this is pure speculation, of course, but that’s kind of the point.

    Numerous companies were removed from the S&P 500 over the past 10 years, including Xerox, Tiffany & co, Western Union, and FLIR. At the same time, companies like NXP, Ceridian, and Enphase were added.

    Enter the Global Index

    Fortunes rise and fall, and just as different companies have their time in the spotlight, the same is probably going to be true for countries as well.

    This is why you can invest in global index funds such as the eMAXIS Slim All World Equity All Country fund. The US currently makes up 64% of this fund, but this number will fluctuate with the fortunes of countries as time goes by. If the influence of Japan or the US wanes and developing markets continue to grow, you can participate in that success by holding such a fund. What this means in practice is that not only can you diversify your investment across companies and sectors, but even countries.

    So why doesn’t everyone invest in global indexes? Well, in recent years the S&P 500 has beaten the global indexes.

    • If you believe that the US will continue to outperform other countries, then you might be interested in investing in something like the S&P 500 or the Russel 2000.
    • If you want to invest domestically, then there are many funds that track the Nikkei 225, TOPIX, and other benchmarks.
    • If you want to diversify to the maximum extent possible and take advantage of the long term gain made by other countries, then something like an All Country fund might be a good idea.

  • Is Stock Market Investing a Type of Gambling?

    Many times when try to dissuade someone from “investing” in FX, Crypto, etc., and steer them towards stocks, I get back “Well aren’t stocks a form of gambling too?” Let’s take a look at that.

    The financial definition of “Investment” from Wiktionary is as follows:

    (finance) A placement of capital in expectation of deriving income or profit from its use or appreciation

    The definition of “Gambling” is as follows:

    An activity characterized by a balance between winning and losing that is governed by skill and/or chance, usually with money wagered on the outcome.

    There is an important difference between these two very different definitions: The “expectation of deriving income or profit” part. It isn’t simply what you “expect”, as in “I expect Toyota stock will go up 10% tomorrow!”

    The word “expectation” as in “expected profit” or “Expected value” has a specific and mathematical meaning in finance. Basically, it’s a weighted average of all of the scenarios.

    For example, if you have a 50% chance of earning a 10% profit and a 50% chance of earning nothing, then your “expected” profit is 5%.

    Stocks are ownership

    Sometimes people forget this, but stock certificates represent ownership in a company. Each share of stock is only a small fraction of the company, but if you owned all of the stock, you would own the company outright. Stocks are simply a way to share ownership of a company among many people.

    Let’s start with a tame example, Tokyo Waterworks (Formally: “Tokyo Metropolitan Government Bureau of Waterworks”, also known as TW).

    TW has a business model that is well understood and has been around a long time. They pump fresh water out of ponds, lakes, or rivers, filter it, disinfect it, and pump it to businesses and residential customers.

    The water itself is free, but cleaning it requires equipment, chemicals, other supplies, and manpower. Water mains must be constructed so that water can be delivered to customers, and those pipes need maintenance.

    So although the water itself is free, there are expenses. The company charges enough fees so that the costs are covered, and a small profit remains. Actually the amount of profit is quite large, but when viewed as a percentage of revenue, it is on the order of 3-4% annually.

    Most of this profit is distributed back to the stock holders as dividends, so if you bought a stock of TW for 10,000 JPY, you would see a dividend of somewhere around 300-400 yen each year.

    The amount goes up and down year by year depending on investment, expenses, etc. – but the long term average is relatively stable. They are the only game in town, and everyone needs water.

    So, if you invest your money in TW, you can expect to earn a relatively stable profit for decades to come. They aren’t going to suddenly have a blockbuster year due to an explosion of demand for new innovative products, nor is demand for water going to go away. Likewise, the cost of the water they pump from lakes isn’t going to change much.

    Salaries and equipment prices may go up, and it may take them a while to compensate with rate hikes, but overall the situation is relatively stable.

    Since the dividends are stable, so is the stock price.

    Clearly, investing in TW is not like “betting it all” on black or red at the roulette wheel. You are not likely to find yourself bankrupt tomorrow.

    Still, you can imagine scenarios where having all of your eggs in the TW basket would leave you in trouble:

    1. There is a financial scandal like Enron. This is very unlikely, but always possible.
    2. There is a giant earthquake that destroys lots of infrastructure. This is always a possibility.
    3. Some other unforseable event or trend.

    In order to improve your already good chances, you could also invest in other utilities like Tokyo Gas, Tokyo Electric, and Internet companies. These also all have a long history and well understood business models. Since most electricity in Japan in generated from natural gas, and most gas is imported, gas and electricity prices can change rapidly – but people will always need electricity, and probably gas too.

    Still, a large earthquake or other natural disaster could cause infrastructure to all of these companies since they are all located in Tokyo.

    To mitigate that, you could also invest in utilities in Okinawa, Kyushu, Osaka, and Hokkaido.

    You could even invest in utility companies overseas, like Philadelphia Electric Company, etc. – but then of course you start to run exchange rate risk. Since many things you buy are probably imported if you live in Japan, this actually could be a good thing.

    Why am I talking about utilities? Because they have captive customer bases, regulated rates, long history, and well understood business models. This means they are usually very stable, as companies go.

    Hopefully you can see that investing in a portfolio of utility companies across Japan and other countries would be relatively “safe”, while also providing more income than something like government bonds.

    Looking at the polar opposite type of companies, the likes of Amazon, Apple, Google, etc. are much more likely to surge in price when a new product turns out to be more popular than expected, or drip in price when a new product flops, expenses rise, etc. These types of companies also don’t typically pay dividends either, and since nobody has a crystal ball, it’s hard to know the “correct” price for these stocks.

    Betting on any single one of these companies is indeed gambling. Imagine you invested in Apple or Google 25 years ago. Now imagine you invested in Blackberry or MySpace.

    One thing is still true, though, though it would take a crystal ball or time machine to know which of these companies would succeed – the winners always make more than the losers lose, so if you had a wide portfolio of such companies, you would always make money in the long term.

    Consumer product companies like Kao in Japan and Proctor & Gamble or Unilever overseas are much more stable than technology companies since everyone needs soap and toilet paper – but they usually pay somewhere between what tech companies and utilities pay.

    Drug companies tend to do well even in a recession, when restaurants and bars struggle. After all, everyone still needs their medicine.

    So, if you invest in a big basket of all of these things, then you can, over the long term earn a pretty penny. When the tech companies, movie studios, and the like hit it big, or there is a blockbuster drug, you will earn big as well. When there is a recession or some companies die out, you will also need to ride out low, or potentially negative returns – but if history is any guide, the market will return to growth.

    If you aren’t betting on any specific company when you buy a stock index like the eMaxis All Country fund, then what are you betting on? Well, basically, the progress of humankind.

    Despite all of the bad news we hear every day, the scandals, the wars, the human rights abuses, etc. – the trust is that poverty has been decreasing almost every year. More people than ever have running water, electricity, washing machines, etc. These people will live better lives, and have more time to contribute to society instead of barely surviving. They will start companies that need investors to grow beyond a certain point, and you can be a part of that.

    That said, it’s important to remember that buying stock is investing into a business. Buying a stock index is just investing into lots of businesses at once. It doesn’t make any sense to buy a stock and sell it tomorrow than it does to invest in your friend’s dry-cleaning business or restaurant and then ask to pull out your funds the next day.

    Most businesses survive because they are doing something useful to society. They are producing vegetables and fruits, new drugs, microprocessors, tasty bread, useful chemicals, winter coats, bicycles and microwaves, or the latest movie or killer app. They stay in business because people pay for their goods and services, and they in turn provide jobs for their employees. This is why it makes sense to invest in a company.

    Compare this to day trading. You buy a share of Toyota today at 8,000 yen, not because you have done some analysis of their dividends, assets, and liabilities to determine that 8,000 yen is a fair price – but because you “expect” someone else will go up to 8,500 tomorrow. That’s not helping anyone or contributing anything to society in any way – and it is very much gambling, since there is also a decent chance it could drop to 7,500 tomorrow instead.

    Betting on FX or Cryptocurrency is even worse.

    A friend of mine recently asked me “Oh yeah? Then why does FX exist?” FX has legitimate uses. For example, if you have a contract in a foreign currency that is due several months in the future, you might want to convert the money now so that you aren’t at risk of the rates changing. (Or, you might want to buy options so that you minimize your risk due to currency fluctuations without actually converting the money now).

    These things are important and necessary for international business, and there may even be instances where they are useful for personal use (Are you saving up for a house overseas?) – but betting that the price of the Dollar or Euro will go up or down is pure speculation. Gambling in the truest sense.

    What about Cryptocurrency?

    Well, talking about the well established “currencies” like Bitcoin and Etherium, I can simply say this – there is no reason why they should go up except for inflation of the yen- and if that’s your concern, precious metals are a much better option.

    The original goal of Bitcoin was to be an international money system free from interference from banks and governments. Free from sanctions and censorship. Perhaps a noble goal, but along the way things have changed.

    The main uses of Bitcoin and similar “coins” has been for criminal activities, money laundering, and speculation. Bitcoin itself is completely worthless. It can’t be melted down to make jewelry like Gold, and it can’t be used to pay taxes or other debts like government currencies. Almost no stores most people shop at will accept it, and so you need to convert it back into Yen or another actual currency to buy much of anything.

    And… not only to transactions take a long time to clear, the value fluctuates wildly, making it a poor currency.

    If it’s not a currency, it must be an investment, right? Well not so fast, it’s not like a business. It doesn’t provide valuable goods and services to society, so it can’t be “expected” to earn a return. In fact, the only ones who can “expect” (in the financial sense) to earn a return from Bitcoin are the exchanges – just like stock exchanges earn nice commissions from day traders.

    What’s more, other cryptocurrencies like “memecoins” are almost all just scams. I can only shake my head when I hear people act surprised at losing money on these schemes. Of course they did!

    Someone I knew told me about a complex scheme they “invested” in, where they would get paid 1% per month, “risk free”. 1% per month is 12% per year. I mean, just use a little bit of critical thinking. If anyone could earn 12% per year, risk free, everyone would be doing it. What magic does this cryptocurrency company do that they earn more than Toyota, all while taking on no risk? What’s more, why would they pay 12% to you to borrow your money when they could just borrow money from the bank at something closer to 2-4%?

    At best, cryptocurrency is akin to electronic beanie babies or trading cards. When people are interested in it, they will bid up the price, when they lose interest, the price will fall. That sure sounds like gambling to me.

    So, is stock investing akin to gambling? Well, it can be. If you invest all of your money into one risky company, then you are very much gambling with your future. If you invest your money long term into an index that includes thousands of countries in dozens of industries many countries around the world then you are investing in the future of humankind – and helping to ensure prosperity for everyone.

  • Off Mall for Precious Metals

    Why hold precious metals?

    While I am a big advocate of investing in stock indexes for the maximum long term growth potential, there are two reasons why investing some of your money into precious metals may be a good idea.

    a. If you are the type of person who feels compelled to sell when the stock market is going down.

    b. If you might need to take out money when the stock market isn’t doing great.

    Not always, but it’s often the case that Gold and other precious metals fare better when the stock market is doing worse, and vice versa. At the moment, gold is at an all time high, while the US stock-market is also at its highest point in several years. This is largely because gold has been bolstered by the uncertainty caused by multiple ongoing wars, while simultaneously the US stock market is in the middle of something of a AI boom.

    Still, when the stock market crashes is often when gold prices soar.

    If you are tempted to sell your stocks whenever the market takes a dive, having a holding of gold or other precious metals might make you feel safe enough to hold onto those stock investments and ride out the plunge. This is a good thing since buying and holding has historically been the best strategy.

    Likewise, if you know you will need to spend money sometime in the next few years, you should theoretically keep that money in cash – but stuff happens, and things come up. If you have money in precious metals, then you will have option selling them when the need arises. You can invest some of the money you don’t plan to spend soon into precious metals, knowing that the chances of precious metals and the stock market both dropping by equal amounts is slim.

    The advantage to holding precious metals over cash is, of course, that while prices fluctuate for other reasons, metals are basically immune to inflation. With the resurgence of inflation in Japan, this is particularly relevant.

    Where to buy precious metals in Japan?

    For purposes of this discussion, I’m going to assume you want to get the gold in your hands, and ignore “virtual” gold, such as EFTs, etc., which only exist on the computer.

    You can buy ingots from manufacturers like Ishifuku, Nihon Materials, Mitsubishi Materials, Tanaka Kikinzoku, and others.

    Some of these (such as Nihon Materials and Tanaka) have physical shops you can visit to buy ingots, while several of them also have “tsumitate” schemes where you can buy a flat amount (in yen) per month, which will be credited to your account. When your account has a high enough balance, you can “withdraw” the amount in the form of an ingot. All of them have a normal mail order service as well.

    Besides the above, there are various used shops around Japan which sell “used” ingots, coins, and of course jewelry.

    Investing in physical gold is tricky because a large ingot costs an extremely high amount of money.

    Large Ingots

    For example, if you wanted to buy a 100g gold bar right now… it would be something like 220 man yen – equivalent to several months of pay. Likewise, when you sell a large bar, you have to sell the whole bar at once even if you only need a little cash. This can lead to tax liability of you netted big profits.

    Small Ingots

    The smaller the ingot, though, the less efficient the transaction is. To take an extreme example, a 1g ingot costs well above the market price of gold, and doesn’t make any financial sense except as a novelty.

    Coins

    Gold coins tend to cost more than the market price of gold in general, but there are two main types:

    1. Commodity coins – The value is based mainly on the gold plus a markup for minting.
    2. Rare coins – The value is based mainly on the rarity of the coin.

    Investing in rare coins is more akin to investing in stamps or other collectibles, so we will not consider those here.

    The thing to understand is that with commodity coins, the price is mostly dictated by the spot price of gold, and they are usually a better deal than very small ingots.

    Jewelry

    Much like coins, gold jewelry is sold at a markup from the price of the raw gold, to cover manufacturing, marketing, and packaging costs. The markup can vary from item to item and brand to brand. In order to make gold more durable as jewelry, it is often allowed with other metals, leading to a less pure gold which is worth less for investment purposes. For example, many necklaces, rings, etc., are 18k instead of 24k gold. The same thing is true for Platinum, where you will often see PT900 or PT950 instead of 100% pure platinum.

    Used coins and jewelry

    Theoretically, gold is gold, and it doesn’t matter if it’s “used” or not – but especially for coins and jewelry, people will may more for a new pristine one than a scratched up used one. Even a scratched up coin will be worth at least the price of the gold it’s made from.

    The same thing is true for jewelry: Even a scratched up or broken piece of jewelry is usually worth at least the spot price of weight of the material it’s made from, discounted for purity.

    Ingots are discounted only very slightly, since there is not much of a premium placed on them to begin with.

    Where to buy used precious metals?

    Let’s say you want to buy some coins or jewelry such as rings, where could you buy them? There are many shops in Japan that focus on gold and precious metals, but one interesting thing is that many of the shops are only interested in buying them, not selling them. Presumably they are selling them in bulk to manufacturers.

    To be sure, there are shops that sell gold coins, platinum jewelry, etc. – but visiting lots of shops looking for the best deal can be very time consuming. If you line outside a major metropolitan area, then you may also not have a lot of choices close by.

    Can you trust online purchases?

    Obviously, you can trust purchases from the online stores of the ingot manufacturers – but what about other places?

    If you look on Mercari or Yahoo! Auctions, you can find gold coins, and even ingots for sale used. You can also find various jewelry for sale as well – but are these real?

    Sadly, there have been numerous cases where people have bought these items online and taken them to professionals to be examined, only to find that they are fake. Even in a low crime country like Japan, the temptation to take the money and run is just too high.

    For example, if I bought a gold coin on Mercari and took it to be tested, it would take me some time and effort. Once the results come back, I have to contact the seller and dispute the transaction. The seller could claim that I switched the item, etc. Sure, after a number of claims their account would be banned – but not before they made a tidy profit.

    As a result, I would say it’s advisable to stay away from any one on one personal transactions – online or in person.

    So then the question is what companies might be selling coins and jewelry online.

    Visiting a local “Hard Off” store recently, I noticed they had a few gold coins and some Gold, Silver, and Platinum jewelry.

    I asked if they tested this jewelry, and they said that indeed they did test it with the proper equipment prior to buying it. For the jewelry, they estimate the ratio of the weight of any diamonds, etc. vs. the metal, but for pure metal jewelry they know the purity and weight definitively.

    Since there were only a few items on display, I asked if there was any more. They told me that what I saw was all there was in stock at this store, but of course different stores had different items. More interestingly, they told me “You can always look online on the Hard Off Mall. Indeed, that is interesting!

    Given that they sell everything from appliances and video games to fancy glasses and tableware, you need to search for what you want – but they do have a variety of coins and jewelry at good prices.

    Most importantly, you know you’ll be getting what you pay for, since it’s a large public company and they test before they buy.

  • About “Shikumi yokin” (Structured Deposits)

    Many people know that there are different type of accounts and financial products in Japan.

    • A “normal” account is an account you expect to take money out of and put money into on a daily basis. (This would often be called a “checking” account overseas, but checks were never popular in Japan).
    • A “savings” account is an account where you plan to keep money for a long period of time without using it, and these often earn marginally more interest than a “normal” account. Technically, you can take money out of these accounts at any time.
    • A “time deposit” is an account where you can put money for a fixed period of time, and you are not supposed to take it out. In exchange for “locking up” your money for a fixed period of time, you get a higher interest than normal accounts and savings accounts. This time period can vary between a month up to a year or more. The important thing is that you can cancel your time deposit and take your money our at any time, but you will lose the interest. These are similar to “Certificated of deposit” offered in other countries.
    • Recently, “Structured Deposits” (仕組預金) have been promoted, which sound similar to “time deposits” – but they really aren’t. These products are what we are here to talk about today.

    Basically the promotional materials say something like this “We’ll pay you 1% interest with a one year contract, and it can be extended for up to 15 years!”

    To the lay person, this sounds great. If your normal bank account is paying 0.05% APR and a normal time deposit is only paying 0.6% APR, then a 1% APR sounds pretty good. 1% is still perhaps lower than you could get from the stock market or even precious metals, but the bank will tell you that it’s also risk free.

    Of course, their definition of “risk free” is simply that you won’t lose the money you put in if you let the contract run to completion.

    Why is this important? Well, let’s dig a bit more into the typical contract.

    1. You deposit at least X yen for at least 1 year.
    2. The bank will pay you 1% interest on this money.
    3. The bank will decide whether or not to renew the contract at the end of the year. You have no say.
    4. The bank can decide to renew the contract for up to 15 years. Again, you have no say in the matter.
    5. As long as the bank renews, you may not cancel the contract or withdraw the money. The only exceptions are things like bankruptcy, legal judgement, etc., and even then the bank will charge hefty fees.

    So in other words, however much money you put into the contract will be locked up for as long as the bank wants it to be, at their option, for up to 15 years.

    Let’s consider three scenarios:

    1. Interest rates remain the same.
      • The prevailing interest rates made this an attractive offer for you, so logic would dictate that if you entered into the contract in the first place, you would probably want to renew it.
      • Likewise, the bank would probably also want to renew it.
      • The bank renews the contract at the end of the 1 year term, and you can’t take out your money for at least another year – but at least you are getting the same 1% interest.
    2. Interest rates go down
      • Interest rates in the market go down, so the 1% is looking even more attractive to you now – of course you probably want to renew.
      • From the bank’s point of view, this deal is looking less attractive, so they decide not to renew.
      • You get back your money at the end of the contract term, plus the 1% interest promised.
      • Now you need to find another place where you can park your money, but you probably won’t find a 1% deal since no bank will want to borrow money at 1% anymore.
    3. Interest rates go up
      • Perhaps normal 1 year term deposits are now paying 2%. You would rather move your money into one of these to take advantage of the higher rates, so you don’t want to renew.
      • The bank would have to borrow at a higher rate now, but they have you locked in at only 1%. Of course they want to renew, and they do.
      • You are earning less than you could elsewhere, but you can’t take your money out. You have to watch while everyone around you earns 2%, and your money is stuck earning only 1%

    Whether interest rates rise or fall, the bank has the advantage. It’s a “Heads I win, Tails you lose” scenario. Now imagine that rates continue to rise for 15 years and your contract is renewed by the bank year after year.

    In this case, you will have twin disadvantages:

    1. You can’t use your money for anything
    2. You are earning less than you could be elsewhere

    If interest rates rise to the point where the 1% would be a really good deal? Well, then of course they don’t renew and you are stuck with the same options everyone else has.

    So this is a product that combines the disadvantages of a term deposit with the disadvantages of a normal account, with the added disadvantage that you can’t cancel the contract.

    I would urge everyone to stay away from these kinds of products. While many financial products benefit both the bank and the consumer, these products are clearly designed to benefit the bank and only the bank.

  • Deposit Type Credit Cards in Japan

     The major international credit card brands (JCB, American Express, Visa, and Mastercard) are available in numerous types in Japan:

    • Traditional post paid credit cards
    • Prepaid cards that must be charged before using
    • Debit cards that link to an existing bank account
    • Deposit based (Secured) credit cards

    Traditional post paid credit cards can help you build a credit history, but… in general they require a credit history.  One way to get such a card is to have credit history from other loans, etc., or to start with a store card before moving to a card with Visa, etc.  Some companies will take a risk by offering you a card with a small limit, and then slowly increasing it over time as you show an ability and willingness to pay on time every month.  

    This is so because the card companies are taking a risk by loaning you the money you use for purchases every month.  If you are a foreignor, especially one with no credit history, banks may be reluctant to take such a risk.  Likewise, even some Japanese people will be deemed a credit risk, especially those with a history of missing payments, as well as those in debt reorganization or bankruptcy, or those who already have a high level of debt compared with their level of income.  

    Prepaid cards and debit cards are a solution to this issue, but they don’t help you to build credit since there is no loan taking place.  

    This is where deposit based cards come in.  

    With a deposit based card, you must sent a deposit to the card company once your application has been approved.  This deposit then becomes your credit limit, which the company can then use to pay off your bill in the worst case.  Because of this, the credit card company is taking on very little risk and will approve applications from most people.  The major exceptions would be if you have been flagged for malicious activity, money laundering, or outright fraud.  

    However, the deposit will normally not be used unless you don’t pay your monthly bill.  Typically the monthly bill will be automatically deducted from your bank account, so as long as there are funds in your account, the money you spend each month will be deducted in the following month or so, and your credit limit will be replentished.  Only in the case that a direct debit fails (for example if you close your bank account or there are insufficient funds) would the credit card company actually use your deposit.  

    This is in contrast to prepaid cards, where you deposit money and then spend that money directly.  With a deposit style card, you pay the deposit, and then when you use the card that is a separate loan balance as with a normal credit card.  After the monthly billing period is over, the company will calculate your balance due and send an invoice or initiate direct debit for the that amount – without touching your deposit.  

    Once the payment has been received, your credit limit will be restores, and you can make more purchases up to the limit again.  So, although you have given them a deposit, the spending does constitute a loan, and so using this style of card does build a credit history.  

    Some things to note:

    1. Yearly card member fees are typically higher than the fees for a “normal” credit card

    2. The yearly fees typically increase with higher deposit amounts/credit limits

    3. Some cards do allow you to apply for an “ETC Card”, which can be used to pay tolls automatically on the highway.

    4. Some cards offer special services such as travel insurance, etc., in the same way that many normal credit cards do.  

    5. If you ever decide to cancel your account, then you will receive your deposit back, minus any unpaid balance due.  

  • Investing in Gold in Japan

     To most people in most countries, investing in gold (or other metals) is something they hear about, but not something they actually do.  

    First, a brief primer on the benefits and drawbacks of investing in gold:

    We’ll start with the advantages:

    a. Unlike Gold has actual intrinsic (real) value.  It’s used for jewelry, electronics, dental work, industrial processes, investment (of course), and more.  Gold is something that people will always want for practical uses, and therefore it will always be possible to sell your gold.

    b. Gold is a hedge against inflation.  If the Japanese Yen, US Dollar, or any other currency goes down in value, the price of gold will not drop, but in fact go up in relation to that currency.  For example, if the Japanese Yen goes down 50% tomorrow, then gold will simply cost 50% more – which is to say that any gold you are holding can be sold for 50% more.  Inflation in Japan has been close to zero percent for a long time, but that is starting to change recently.  

    c. Gold is a hedge against currency exchange risk.  This is a variation on a theme, but if a currency drops reletive to other currencies, then you would be better off holding gold instead of that currency.  This isn’t just academic, as the US Dollar rose significantly against Japanese Yen in the past year.  

    d. There is a limited supply of gold.  Despite the best efforts of alchemists all over the world over the last several hundred years, gold can’t be created from anything else in anything anywhere near resembling a cost effective method.  That means that we have what we have, and the earth has only a limited supply.  Since gold is useful and there is always a demand, the limited supply means that there is a floor on the price of gold.  This is extremly unlikely to change, barring the advent of efficient space mining.  

    There are certain disadvantages, though, with some being country specific:

    a. Gold doesn’t earn interest, and it doesn’t pay dividends.   When you buy a loan like a bond, you are funding a company or government, and they will pay you for the privlidge of borrowing your money.  Ideally the amount you are paid should outweigh any inflation.  Bank accounts, likewise, are in fact just a loan to the bank, so banks will pay you interest as well.  When you invest in stock, you are buying part of a business.  If the business does well, then the value of the stock will go up according to the company’s growth potential or actual growth.  Companies like Sony, Toshiba, Hitachi, Google, Fujitsu, Apple, Amazon, and Rakuten earn profit and can pay dividends on a regular basis – whereas gold is just a lump of metal that doesn’t “do” anything.  It mainly goes up in value only if new uses are found, or the market is fearful.  A box of gold bars sitting in your house also doesn’t earn rent like a property can.  

    b. At least in Japan, purchasing gold is not considered to be exchanging money like, say, FX trading.  Gold is considered a physical good, and not a monetary instrument.  That means that you must pay sales tax when purchasing gold.  The sales tax in Japan is currently 10%, so in order to make money by investing in gold, the value would have to go up more than 10% in order for the investor to recover what they paid in sales tax, plus all of the fees involved in buying and selling the gold.  

    c. Spread and Transaction Fees.  Much like with currency exchange, gold dealers will charge a different fee to purchase gold than they sell it at.  This difference is called the “spread”, and exists to allow the company to make a profit regardless of parket conditions.  On top of that, buying and selling gold is also not free.  Besides the spread between buy and sell rates that exists, most companies that deal in gold charge transaction fees for buying and selling.  This is probably to cover fraud, security, and testing.  In general, the smaller quantity of gold you are dealing with, the larger the fees become relative to the transaction amount – though it varies by company.  

    d. Tax treatment.  Even if an investor buys gold, and the price goes up enough to make selling it profitable, a tax will be exacted on that profit  by the Government of Japan.  The tax rate is lower if you have held the gold for at least five years.  This rule is designed to discourage speculation, but it has the side effect that anyone who might need the money soon should avoid buying gold.  

    e. Security.  If you have invested a large amount in physical gold, then you need somewhere to keep it.  Just like cash, you can keep it in “the bank”, but then you may need to pay management fees to the gold dealer who is holding it.  

    For the reasons listed above, many Japanese people would prefer to invest in stocks, bonds, property, or just keep cash.  

    In some countries where the currency is less stable, there are fewer other opportunities for investing, or the tax regime is less strict, gold transactions are much more popular.  For example, in China, there are mom & pop shops that deal in “gold rice”, which is very small rice sized pieces of gold of well less than a gram that anyone can buy or sell for cash without any ID.  

    This makes sense, since the Chinese currency is not the most stable, and the same goes for the local stock market.  The government restricts transfers of money to other countries, and the huge property bubble that is collapsing as I write this isn’t going to encourage people to invest there.  

    It’s also easy to buy the small pieces of gold little by little over time and build up a nice little nest egg.  

    The situation is similar in many devloping nations, where people might fear hyperinflation or not trust the government or banks.  

    In Japan, it’s not super common for people to invest in gold.  There are multiple reasons for this, but probably the main ones are as follows:

    0. Lack of need.  Japan’s currency is relatively stable, people mostly trust the government, and there has been very little inflation over the past two decades.  This means that it’s very unlikely for people to make their 10% back on the basis of inflation alone.  Instead, people who buy gold are more likely to be speculators rather than investors, or the very wealthy.    

    1. It’s difficult to know where to buy gold.  You can but it multiple places, even online shopping sites like Amazon or Rakuten, but the prices are always far above the market rate, and it’s difficult to know if you might be getting scammed.  

    2. Budget.  The average person might have a few hundred USD to invest at any given moment, but the more famous dealers charge high fees for small transactions, or only deal in large amounts to begin with.  

    So the question becomes:  If you aren’t super wealthy, and you are interested in investing in gold in Japan, how can you do it in a cost effective way?

    Before getting to the most cost effective way, let’s look at some of the less efficient alternatives:

    1. Jewely and/or coins – You can purchase jewelry and/or coins at various small brokers and pawn shops in Japan, as well as online.  Typically the price you will pay is far above the price per gram for gold you will find listed on Google or Yahoo.  This is because the price will be affected by the “quality” of the piece.  The beauty, rarity, etc.  For example, a famous but rare limited edition coin may sell for much greater than the cost of the actual gold used to make it – in the same way that stamps can go for huge sums of money even though they are just pieces of paper.  Another thing to consider is that pure gold is very soft, and so therefore many companies will mix it with other harder metals in order to produce a metal with more ideal characteristics for making jewelry – This is where 18k gold comes from.  The result of all of this is that while investing in jewelry and coins might be a fun past-time for some people, it is not really the same thing as investing in gold itself.  Further, there is some small amount of worry about whether the items are indeed genuine.  

    2. Purchasing gold ingots, etc. at small shops or online.  You can find gold ingots at some small pawn shops and gold dealers, as well as online, but buying something like 1 gram of gold, you are likely to have to pay twice the official market price.  The same thing goes for novelty gold gift cards, etc.  For anything purchased from a random seller online, there is a fair chance that you might be getting scammed.  

    3. Investing in a gold related company – This is something many people have had confusion about.  People will invest in (for example) a gold mining company and then be surprised when the investment doesn’t turn out how they hoped.  Investing in a gold mining company or a gold dealer means you are investing in a company, not in the gold itself.  Most of these companies will do well even when the price of gold is lower, but they will not track the performance of gold, and it a company goes bankrupt because of scandal, regulatory compliance issues, or something else, you will lose your investment.  

    4. “Virtual” gold.  This is where you invest in gold online much like you can invest in foreign currencies with FX.  There is no specific gold assigned to you, and you can’t actually take delivery of the physical metal in most cases.  All you can do is sell it.  This is probably fine in most cases, but just beware that if the company goes bankrupt, then they may use the gold (if they have it in their posession) to pay off debts to credtors, suppliers, tax liabilities, employees, etc.  If you really want to keep gold in case of an economic crash, then you might want to have the ability to covert your holdings into the actual metal you can keep in your house or a safety deposit box.  

    5.  Other financial instruments: ETFs, Futures, or Options.   Basically speaking, Futures and Options can be used to hedge financial risk, or for speculation, but are not really suitable for long term investment.  ETFs vary widely based on how they are constructed, so research is warranted, but a gold related ETF may just be a basket of stocks for gold related companies.   

    6. In person through a major gold manufacturers.  This is where you take cash and go to one of the three large gold manufacturers in Japan, and walk out with a gold Ingot.  This is the most efficient way to buy and sell gold, assuming you are needing to buy or sell large quantities.  The three different companies all have different spreads, and charge different fees.  Amusingly enough, Costco has a deal with one of the manufacturers, where you can actually walk  into Costco in Kawasaki and walk out with gold in your hand.  

    7. Purchasing gold overseas.  You can certainly do this, but you must declare the gold when bringing it into Japan and pay import taxes.  If you do somehow sneak it in, it won’t help you, because without proof of sales tax, you will need to pay sales tax when selling your gold to any reputable dealer.  Gives the word “Sales tax” a new meaning.  

    And finally…

    8. A gold investment plan.  These are designed to let you use Dollar Cost Averaging to purchase gold in relatively small amounts over time in an automatic fashion, just like a 401k allows you to invest a small amount with every paycheck.  

    Before we get into the details, let’s talk about the major gold manufacturers in Japan:

    1. Mitsubishi Materials – This is part of the Mitsubishi conglomerate, which has related companies ranging from banks to automotive companies.  You can think of this as a manufacturing conglomerate and bank that decided to branch out into ingots.  

    2. Tanaka Kikinzoku – Tanaka is basically a jewelry company that decided to branch out into the ingot business.  They do offer an investment plan, and deal in coins as well.   

    3. Nihon Material – Nihon material is much like Mitsubishi Material in that they are in industrial manufacturer that produces gold plates, film, pellets, etc., for industrial customers, and also happens to offer ingots and an investment plan.  

    Basically speaking, Mitsubishi is a famous name, and Tanaka is well known, so they both relatively low spreads, but charge very high fees for low quantities.  In fact, the last time I checked, Tanaka would charge a huge fee just to hold your gold.  This means they are only cost effective for those who have a lot to invest (at once, or monthly).  Nihon Material has a slightly higher spread, but it much more affordable in terms of fees.  

    This reflects the current situation, and may change over time, so please do your research before opening an account.  

    I’ll only go over the Nihon Material plan in detail, since that will be the best option for most people.  

    Application Process:  You need to open an account before you can go anything.  The gold industry is slightly behind the times, so you will need to fill out a form online, but they will then mail you an application form to fill in, and send back with copies of your ID and bank account information, along with how much you would like to invest monthly, and into which metals.  You can invest as little as 3,000 JPY (Around $30) per month, making this a plan truly targeted at all people.  

    Once they have received your information and set up your account, they will send you another envelope with your login account and password information.  You can check your current invested and uninvested balance, and change your monthly contribution amounts, as well as request to buy, sell, or withdraw gold (more on that later).  

    Let’s say that you have some extra money burning a hole in your pocket – you can log in and purchase additional gold beyond your normal monthly contribution.  

    Likewise, if gold is super high at the moment and you feel like you want to sell some of it, you can – just beware, buying and selling manually somewhat defeats the purpose of automatic contributions and Dollar (or Yen) Cost Averaging (DCA).  

    The way the account works in practice is that every month on the same day, Nihon Material will withdraw the elected amount of money via direct debit from your bank account, and that money will go into your investment account and sit there as uninvested cash until the following month.  

    When the next month rolls around, they will invest a little of the money each day, so that by the end of that month, they have invested all of it.  Since they only buy on business days, and the number of business days varies per month, and so does the purchase amount per day.  

    For example, if you were investing 10,000 JPY (~$100 USD), then the daily investment this month would be 454 JPY per day.  If this month had more business days, then the amount invested per day would be less.  Likewise in a month with a lot of public holidays, the amount invested per business day will be more.   The important thing to remember is that the amount you invest per month is fixed, and they automatically deduct the cash and do the work of splitting it up into multiple daily transactions.  

    The amount of gold you can actually buy for that amount will also vary by day.  This may cound confusing, so let’s look at an example:

    At today’s rate, that 454 JPY would buy 0.04954 grams of gold.  That is close to 0.05 grams of gold, which means after 10 business days you would have 0.5 grams.  In a 20 business day month, you would get 1 gram.  This month has 22 business days, so it would work out to about 1.1 grams.  A gram is currently roughly a bit over 9,000 JPY so it roughly works out to something a bit more than 9900 JPY worth of gold, which sounds correct given our 10,000 JPY investment contribution example above.  

    It’s nice that they spli the purchase by day to give you the best average price, since the price of gold can sometimes change a lot in the course of a month.  It’s even nicer that they do this without taking transaction fees every time since there are so many transactions!  

    Everything that I have talked about up until now, you can also do with many online investment accounts, such as for example Crowd Bank.  Crowd bank will also let you set up an investment account with direct debit, and they will also split the amount up by day and automatically invest every day so you get the best average price.  Likewise, you can also do spot purchases and sales in addition to regular contributions.  

    The major difference is this:

    With gold manufacturers (including Nihon Material), you can actually withdraw the gold!  This means you can have the advantages of investing little by little with low fees, and also physically owning gold!  

    Basically, the way this works is that you just apply to receive a gold bar online, and they will send it to you.

    You can request 5g, 10g, 100g, with various options all the way up to 1kg.  

    The 100g and up bars have no “bar fee”, whereas the smaller bars do have them.  Given that the fees on something like 5g would be very significant in relation to the value, I would say that you should wait as long as you can before requesting a bar, with 100g being the best obvious choice.  If you are only able to invest a small amount, and a 100g bar would take forever, then perhaps 50g is not a bad option.

    Warning: You probably want to avoid the larger bars like 1kg even if you are super wealthy.   Why?  Well, for tax reasons.  

    As mentioned above, any gold you hold for more than 5 years can be sold with an advantagous tax disposition.  Besides that, profits below a certain amount can basically be ignored.  Each gold bar comes with a sales tax receipt and a serial number.  You can use these to prove the date of purchase, and that you have paid sales tax (otherwise you would have to pay it again!).  If you have a bunch of 100g bars, you could sell off a few every year to pay for your living expenses, starting with the older ones.

    If you have a 1kg bar, then you have to sell the whole thing!  The bar may be less than 5 years old, and also it may have generates a huge profit or loss.  If it’s generates a loss, then you probably don’t want to sell it, but you might need to if you really need the cash.  On the other hand, if it’s generated a huge profit, then you will immediately blow past the tax deductable amount of profit.  

    You can get Nihon Material (or one of the other companies) to convert a 1kg bar into 100g bars, for example, but all of the companies charge a huge fee for this because they can.  Why can’t you just sell your 1kg bar and buy 10 bars at 100g each?  Well, because then you are selling, and buying, so you have to pay the taxes mentioned above, plus sales tax again.  Ouch!  So as long as the companies keep their re-bar fees lower than that, then people will pay.  

    So… avoid the smallest bars for fee efficiency reasons, and avoid the largest bars for tax efficiency reasons.  

    I have left Tanaka and Mitsubishi out of the discussion because they have higher fees in general for smaller bars, so the extent that it seems like they are actively trying to discourage anyone who is not wealthy from investing.  Nihon Material offers you the chance to get your hands on real gold, while having a reasonable pricing structure.  

    With the JPY falling against the dollar, inflation on the rise in Japan, gold rising to an all time high, and the instability in the financial markets as well as political instability recently, investing in gold might make sense to a lot of people.

    Investing a huge amount of money at once while the prices is at historical highs hardly makes any sense, but neither does waiting – so an investment account with cost averaging is the perfect solution.  Whether you have $30 per month or $1,000 per month to invest, Nihon Material has you covered.  If you have more than that, then you might get a better deal with one of the other companies, since the spread potentially becomes a more significant factor vs. the fixed fees.  

  • Quick Guide to Prepaid Cards in Japan

     There are multiple types of cards commonly avaiable in Japan:

    • Cash Cards (ATM Cards) – These can be used at ATMs to deposit, withdraw, and transfer cash, and sometimes with the J-Debit network to pay for things at a limited number of stores.  These cards serve the same purpose as passbooks that are used for some accounts, and you can typically have both on the same account.  
    • “Normal” Credit Cards – These are cards with the JCB, Visa, Mastercard, or Amex brand that can be used to pay for goods and services.  Most of these cards support the contact IC (Chip & Pin) standard, and may also have a magnetic stripe.  In addition, most have anumber printed on them that can be used for online purchases.  “Numberless” (NL) cards without a number or mag stripe are becoming more common in recent times for purposes of fraud prevention.  Some allow creation of “virtual numbers” online.   Also, some cards support international contactless payment standards like “Visa Touch”, and some support Japanese contactless payment standards like iD or QuickPay.  The major brands can also be used to charge prepaid contactless payment methods, such as Suica and Edy.  Typically, purchases made on a credit card are due in full the following billing cycle by default, though it is a common feature to be able to spread a payment out into N payments, where N may be anywhere from 2 to 24 payments.  Revolving payment plans are also supported by some cards.  Typically payments made with 1 or 2 payments are free of charge, whereas payments made over more than 2 months, including revolving payments charge interest or a service fee.  Some credit cards will alllow you to generate virtual numbers for online shopping as well.  We will cover credit cards in more detail in a future installment.  
    • Debit Cards (often called Check Cards overseas, called “Shopping Cards” by many banks in Japan) – Besides the J-Debit feature sometimes supported by cash cards, Visa and JCB debit cards exist, which link directly to a bank account.  Sometimes these are issued as a separate card (as is the case for SMBC, Mitsubishi, and many of the larger banks), and sometimes you will be issued a combination cash card/debit card (as is the case with Sony Bank, Rakuten Bank, Prestia, Japan Post Bank, and others).  Some banks will not issue a physical debit card, but will issue virtual debit cards.  au Jibun bank follows this pattern, issuing a cash card, but allowing you to generate a credit card number in the app for online payments.  Like credit cards, debit cards may or may not support international and/or domestic contactless payments, and some banks allow the generation of virtual numbers.    
    • Contactless IC cards (electronic money) – These are stored value cards that hold the value internally, not in an account.  They can purchased and used anonymously, and charged by cash or sometimes credit card.   Mobile app versions exist which will work on Japan market smart phones, and work the same way as the physical card in that they need to be charged before use.  These include Suica, Pasmo, Edy, Waon, etc.  Suica and Pasmo can be used for the bus and train, in addition to convenience stores, supermarkets, cafes, etc.  Almost all of these cards used in Japan are constructed using Sony’s Felica technology, and are not compatible with NFC standards used in other countries.  
    • Prepaid Cards (Prepaid Credit Cards) – These are essentially like debit cards, except they are deducting from a balance specific to the card, not directly from a linked bank account.  Some cards, however, can be set to automatically charge from a linked bank account if the balance is not enough.  Cash can not negerally be removed from these cards once charged.  Like credit cards, they will usually have a magnetic stripe, and may have contact (EMV) or contactless IC (Felica or NFC) chips.  All of the cards I am aware of have a card number for online shopping as well.   

    Prepaid cards have the advantage of being generally easy to apply for and receive, as there is usually no credit check necessary.  They can be used for online payments, or at shops – but they can’t directly be used to ride public transportation.  (They can generally be used to charge mobile Suica, etc., so they can be used indirectly for transportation).  

    Prepaid cards also make budgeting easy, as you can put money into a prepaid card that you plan to spend for groceries, etc., to ensure you don’t go over your limit, without worrying about using up the balance in your bank account that might be needed for direct debits, or receiving a large credit card bill in the future.  

    Since prepaid cards vary in features, we will cover a few of the more common ones here:

    SMBC Puripe (Prepaid)

    This is Sumitomo Mitsubishi Bank’s standard prepaid card.  (There are also ANA and Family versions)

    Application: You don’t need a bank account with them to apply, in fact basically anyone can apply online.  Technically, you need to have a mobile phone number / email address, and be at least 6 years old.  

    Name: The card is issued with your actual name printed in Romaji on the front.

    Brand: This card is Visa branded.

    Contact IC: This is the only card I know of with a contact (Chip & Pin) IC.  That makes this card better if you plan to use it in person for large purchases, especially overseas.

    International Contactless IC: Visa touch is supported on the card itself.  This will work in Japan but is only supported in a limited number of places and is usually inconvenient to use.  Better is the fact that this should work overseas as well.  Visa Touch is also supported on Apple Pay.  

    Domestic Contactless ID: The physical card itself has no domestic contactless payment support, but if you register the card with Apple Pay or Google Pay, it supports iD.  Since a large number of shops support iD, this is quite convenient.  

    Transportation IC: This card can be used to charge Mobile Suica.

    Charge methods:

    • Charge at 7-11 ATMs using cash.  No transaction fee.
    • Charge online from the SMBC Prepaid site using an SMBC Credit Card.  No fee.
    • Charge online from the SMBC Prepaid site using a non-SMBC Credit Card.  210 JPY Transaction fee.
    • Charge online from SMBC Prepaid site using a bank account.  Works with most banks if you have net banking.  210 JPY Transaction Fee
    • Charge from “V Point”, if you have them. 
    • Note: Credit card charges can be scheduled to charge automatically on a particular day of the month, or when the balance falls below a certain point.  

    Balance check: The card has a QR code on the reverse, which can be used to check your balance without logging in.  This is super convenient, since it only takes a few seconds to check your balance.  You can scan the code once and save a bookmark on your phone, so that you can easily check the balance in the future without even scanning the code.  If you want to do anything else, such as charging the card or changing any settings, you will of course need to log in.  

    Notifications: A mail will be sent when the card is used.  Optionally, you can set a monthly spending limit, over which another notification mail will be sent.

    Design: This card is silver and rather plain looking, and in fact looks exactly like the normal SMBC credit cards, with the exception of “prepaid” printed in small grey lettering on the front.  The number is printed on the back of the card.  

    Points & Cashback: 0.25% cash back, added to the balance on the 10th of each month based on the usage of the previous month.  

    Maximum Balance: 300,000 JPY (~$3,000 USD)

    Fees:

    • Application / Initial Use: None
    • Yearly Fee: None
    • Charge Fee: Varies (Detailed above)
    • Foreign Transactions: 4.07%

    URL: https://www.smbc-card.com/prepaid/visaprepaid/index.jsp

    d Card Prepaid

    The mobile phone carrier NTT Docomo has their own credit card, d Card (previously: DCMX), and this is the prepaid version of that.  This card business is actually run by SMBC, so it is mostly the same as the SMBC Puripe card listed above.  

    Application: You don’t need any particular bank account or credit card to apply, in fact basically anyone can apply online.  There seems to be an impression that you need to be a Docomo user or have a d Card to apply, but this is not true.  You do need to create a “d Account” in order to apply, but anyone with an email address can do that.   Another requirement is that you must be at least 12 years old.   

    Name: The card is issued withthe name “PREPAID MEMBER” printed on the front, so that name should be used when making online purchases.  

    Brand: This card is Mastercard branded.

    Contact IC: This card has no contact IC.  This means if you use the card in the traditional way (i.e. not contactless or online), you will need to swipe the card, and then sign in many cases.  

    International Contactless IC: None on the physical card itself.  You will have to swipe the card if you are overseas.   The card supports Mastercard Contactless when using Apple Pay (Google Pay is not yet supported).  

    Domestic Contactless ID: The iD standard is supported on the physical card itself, which means you can use the card contactlessly at most commercial retail stores in Japan.  (This is not surprisingly since Docomo is a big backer of iD).  

    Transportation IC: This card can be used to charge Mobile Suica.

    Charge methods:

    • Charge at 7-11 ATMs using cash.  No transaction fee.
    • Charge at the register at Lawson.
    • Charge online from the SMBC Prepaid site using a  d Card Credit Card.  No fee.
    • Charge online from the SMBC Prepaid site using a non-SMBC Credit Card.  204 JPY Transaction fee.
    • Charge online from SMBC Prepaid site using a bank account.  Works with most banks if you have net banking.  204 JPY Transaction Fee
    • Charge from d Point balance
    • Charge from your Docomo cell phone account (i.e. add it to your monthly phone bill)

    Balance check: The balance can be checked from the d Card Prepaid web site.  This site works on mobile, but you will have to log in even just to check your balance.  Once you log in, the browser will remember the login via cookies, but every time you access the site, you will need to enter your date of birth before you can do anything.  

    Notifications: A mail will be sent when the card is used.  You can set up two email addresses.  

    Design: The current design of the card is yellow on the front.  The card number is printed on the front of the card.  The card doubles as a d Point card, so there is a bar code on the reverse side for that.  

    Points & Cashback: 1 d Point per 200 yen spent, which equates to 0.5%.  These points can be used to charge the card, among other things.  The card can be used as a point card, even when paying cash.  

    Maximum Balance: 300,000 JPY (~$3,000 USD)

    Fees:

    • Application / Initial Use: None (The site lists a fee, but mentions it is currently being waived).  
    • Yearly Fee: None
    • Charge Fee: Varies (Detailed above)
    • Foreign Transactions: 4.07%

    URL: https://dcard.docomo.ne.jp/prepaid/index.html

    JCB ANA Milage Club Prepaid Card

    Interestingly, the almost identical looking Visa version of this card is offered by SMBC, but the JCB version is offered directly by JCB itself.  Interestingly, only prepaid card (other than gift cards) that JCB offers is the ANA branded one, however when applying, you can choose between receiving miles or cash back – but either way it will be ANA branded.  Even a cash back card still has an ANA point number on it, though, and so can you can use this number when buying plane tickets from ANA or affiliated airlines.  Note that ANA is part of Star Alliance.  

    Application:  There are no real requirements listed for application on the main page, but the application process is somewhat more involved than most others, much like applying for a normal credit card.   

    Name: The card is issued withthe name your actual name (in Romaji) printed on the front, so that name should be used when making online purchases.  

    Brand: This card is JCB branded.

    Contact IC: This card has no contact IC.  This means if you use the card in the traditional way (i.e. not contactless or online), you will need to swipe the card, and then sign in many cases.  

    International Contactless IC: None on the physical card itself.  Unknown if  this works on Mobile, so you should assume contactless payment won’t be available overseas.  

    Domestic Contactless ID: None supported on the physical card itself.  The QuickPay standard is supported on Google Pay.  Apple Pay is not mentioned anywhere.  

    Transportation IC: Untested.  (Presumably works).  

    Charge methods:

    • No current ability to charge at ATMs.  
    • Charge at the register at Lawson.  There is a limit of 49,000 JPY per charge.  No fee.  
    • Charge online from the MyPage site using a  JCB Credit Card or debit card.  Same 49,000 JPY limit per charge as above.  No fee.
    • Charging online from the MyPayge site using a non-JCB Credit Card is not supported.
    • Charge online from MyPage side using a bank account.  Works with most banks if you have net banking.  110JPY if the charge amount is under 10,000 JPY (~$100 US), no transaction fee if the amount is 10,000 JPY or above.  The process is somewhat convoluted compared with most of the other cards on this list.  There is a limit of 29,000 JPY per charge when using this method.  
    • Web Conbini – This is a method where you apply online, and then get a number which you need to use to pay at the convenience store.  The disadvantage is that you need to register online first, but the advantage is that it can be used at convenience stores besides Lawson, including 7-11, MiniStop, Family Mart, etc.  The transaction fees and limit are the same as when charging from a bank account.  

    Balance check: The balance can be checked from the MyCard web site.  This site works on mobile, but you will have to log in even just to check your balance.  There is a QR Code on the back of the card to make this easier if you are on mobile.  

    Notifications: A mail will be sent when the card is used.  You can set up two email addresses.  

    Design: You can chose between grey, blue, or pink.  The card number is printed on the front of the card.  The card doubles as an ANA Milage Point card, so there is also a number printed on the front side for that.   

    Points & Cashback: 

    As mentioned above, you can choose between Miles or Cashback when applying for the card.  I will list both here:

    Miles:

    • You earn 5 miles per 1000 JPY spent (0.5%)
    • This amount is added to your account at the end of the each month based on your spending from the 16th of the previous month until the 15th of the current month.  

    Cashback: 

    • You earn 1 JPY per 200 JPY spent (0.5%)
    • This amount is added to your account on the 25th of the each month based on your spending from the 16th of the previous month until the 15th of the current month.  

    Regardless of which method you choose, there is also a bonus paid twice a year based on the amount you charge (not spend):

    • From March 16th to Sept. 15th – Bonus will be paid at the end of Sept.
    • From Sept 16th to March 15th – Bonus will be paid at the end of March.
    • If you charged at least 120,000 JPY, you will receive an additional 180 JPY/Miles.
    • If you charged at least 240,000 JPY, you will receive  an additional 360 JPY/Miles (total).  

    Since you can charge this card in person using cash or via bank account for free relatively easily, it is one of the better cards if you are wanting to earn points and save on fees.  

    Maximum Balance: 300,000 JPY (~$3,000 USD)

    Fees:

    • Application / Initial Use: Application is free, but 550 JPY is charged on the first use.  
    • Yearly Fee: None
    • Charge Fee: Varies (Detailed above)
    • Foreign Transactions: Not Mentioned.  

    URL: https://www.jcb.co.jp/prepaid/ana_prepaid.html

    au Pay (Prepaid) / Previously au WALLET

    This card is offered by KDDI’s au Mobile phone carrier.  

    Application: You must have an au Pay Account (and app), and also be either:

    • An au subscriber (mobile or hikari (fiber) internet)
    • An au Jubun Bank account holder with an account linked to au Pay

    People have the impression that you must be an au Subsriber to get this card, but since anyone with an au Jibun Bank account can get one (and you can apply for an account online easily enough), it is actually open to anyone who can open a bank account.  

    It should be noted that there is also an “au Pay” card which is not prepaid, but a normal credit card.  

    The au Pay service is a basically an app based QR Code payment app, much like PayPay, etc.  You need to install this app and create an account.  Once you link it to an account, you will be able to charge and use the app to pay via bar code or QR code and charge mobile Suica from the app as well.  If you link it to an au Jibun Bank account then they will automatially send you an au Pay prepaid card.  Presumably the same is true if you have an au subscription on the same au Account used by the app.  

    This card is really an extension of the au Pay app.  

    Name: The card is issued with your actual name printed in Romaji on the front.

    Brand: This card is MasterCard branded.

    Contact IC: This has no contact IC.  This means you will usually need to sign if you are charging a large amount on the physical card.  

    International Contactless IC: None on the card itself.  

    Domestic Contactless ID: 

    • None on the card itself.  
    • Supports charging Mobile Suica from your prepaid balance right in the au Pay app.  
    • Supports QuickPay on ApplePay

    Transportation IC: Untested (presumably works)

    Charge methods:

    • Charge at Lawson/7-11 ATMs using cash.  No transaction fee.
      • When charging at the ATM, you can use the physical card, or a QR code generated by the au Pay app.  This means you don’t need to bring the actual card with you to charge it at an ATM.  
    • Charge at Lawson by paying cash at the register.  
    • Charge using cash at au some Shops using cash at a “SaKuTTO” kiosk.  (Transaction fee unknown).  
    • Supposedly you can charge from the au Pay web site, however it seems to just direct you to the app.  
    • Charge from the au Pay app – including from au Jibun Bank Account
      • You can charge from an au Pay (credit) card in the app
      • You can charge from (and view the balance of) your au Jibun Bank in the App
      • You can charge from other credit cards in the app.  Apparently all Mastercard and Amex cards work, while only some Visa and JCB cards do.  
      • There is an auto-charge setting which has two modes: Real-time, and “staged” (for lack of a better term).
        • Realtime just pulls the amount needed to complete a purchase from your linked au Jibun bank account if there isn’t enough money.  (This is also how the now discountinued JP Bank Mijica card worked).  In essence, your prepaid card acts like a debit card when using this setting.  
        • “Staged” will charge your account by X yen when it falls below Y yen.  For example, you could set it to charge your card by 10,000 JPY whenever it falls below 5,000 JPY.  That way you know the card always has at between 5,000 and 15,000 JPY.  This mode keeps your bank account ledger much cleaner by taking money in blocks.  (This is also similar to how e-money auto-charge credit cards like View Suica and Pasmo credit cards work).
        • Auto-charge can only be enabled by people who have au contracts.  (mobile phone, fiber, etc).  

    Balance check: You can check the balance on the web site or application.  

    Notifications: No Information.

    Design: The card apparently comes in two varieties, orange and silver.  The front of the card has the card number and accountholder name.  The back has a signature panel and WebMoney bar code.  WebMoney is basically a generic gift-card type format that can be used on some online shops, and is supported bu the au Pay card.   

    Points & Cashback: 

    • au  uses Ponta points
    • 1 Ponta point is awarded per 200 JPY spent (0.5%)
    • For shops that specifically support the Ponts Point scheme, you can ean additional points (i.e. 1%)
    • If you link a Ponta account to your au account in the au Pay app, you can pay via Ponta points from the au Pay app
    • You can use Ponta points to charge the balance of your au Pay account. (and thus prepaid card)

    Maximum Balance: 500,000 JPY (~$5,000 USD)

    Fees:

    • Application / Initial Use: None
    • Yearly Fee: None
    • Charge Fee: None

    URL: https://www.au.com/payment/prepaid/

    Other Examples

    • Merucari is an online fleemarket app that also has a QR Code based payment system.  For example, you can sell goods, and hold a balance in Merucari for the funds you received.  You can transfer that balance back to your bank account, but you can also pay for goods with QR code, or, with Google Pay, you can pay using iD.  Merucari will also send you a physical prepaid card if you request.  This makes it similar to au Pay in many respects since it is app centric and the Physical card is just an add-on.  
    • There is a prepaid card names Kyash.
    • There are prepaid cards issued by banks and linked to bank accounts.
      • Japan Post used to have the Mijica card, but they discontinued this and replaced it with a debit card
      • Rakuten bank offers a prepaid card that can be charged from a Rakuten bank balance.
    • There are prepaid cards issued by credit card companies and daughter cards t a main card
      • Examples in this list of prepaid cards linked to normal credit cards mentioned aboce include “d Card prepaid” and “SMBC Prepaid Card”, but these cards can be issued without having a credit card from the company, and charged using other methods.    
      • A good example of a prepaid card dependent on a credit card is the Marui ePos prepaid card, which can be applied for as a daughter card to the Marui ePos Credit Card.  

    Overall Thoughts

    Debit/Credit Card style Prepaid cards still have minimal market share penetration in Japan.  For example, Mitsubishi Tokyo Bank offers Visa debit cards and credit cards, but not prepaid cards.  Likewise there are no American Express branded prepaid cards at this point in time.  Depending on your use case, charging Mobile Suica from a debit card may be useful instead.  

    Bank accounts can typically be opened and maintained for free, meaning that the difference between debit cards and prepaid cards is mainly that debit cards are connected to a bank account, so you can always withdraw the cash.  

    If you need to keep money in your bank account for pending direct debits and don’t want to worry about overspending, you can open a separate “allowance” account at another bank, or use a prepaid card.  

    Gift card style cards are another option, including virtual gift cards such as Amazon, etc. – but prepaid cards are more flexible in where they can be used.  

    Things like Merucari can function as virtual prepaid cards even without a physical card.  

    Although the number of prepaid cards on the market is limited at this time, there is still a variety of cards with different features for different needs.  For example: 

    • If you want to use the card primarily for online purchases, any of the cards listed above will work fine, though JCB is not accepted by all foreign sites.  Some sites don’t accept prepaid or debit cards at all.  
    • If you want a card with a contact ID chip for Chip & Pin payment or international contactless payment in person, then the SMBC Puripe card is currently your only choice.
    • If you want a card with built in Japanese e-Money, then the d Card is your best choice.
    • If you want a card with e-Money that works on your phone, then which card you should choose depends on which brand you prefer (iD or QuickPay), and whether you have an Apple or Android device.  d Card and au Pay cards work on Apple devices, whereas SMBC Puripe and ANA JCB Prepaid work on Android devices with Google Pay.  
    • The usable charge methods and fees vary by card, so which card you choose may depend on whether you cant to charge by credit card, bank account, or cash.  

    Additional Considerations:

    • Some web sites accept prepaid cards, but require that cards you use have 3D-Secure support.  3D-Secure is a system where you have to enter a password when registering the card, for fraud prevention purposes.  Not all cards support this, for example au Pay Prepaid just implemented this feature recently.
    • Prepaid cards are still behind normal credit cards and debit cards in terms of features.  For example, some banks and credit card issuers allow you to set the times of day when a card will work, and precise spending limits per day.  For example, with a Rakuten Visa Debit card, you could set the card to only allow charges of up to 8,000 JPY per day.  If you intended to use the card only at the supermarket, this could prevent fraud.  Likewise, if you know you will only want to use a card during the daytime, you sould set it to be inactive between 10pm and 10am.  Many debit/credit cards, such as Marui ePos Credit card and PayPay Bank’s debit card, allow you to set up virtual card numbers with set spending limits and expiration dates for online purchases.  Many of these features are not yet available on prepaid cards.  
    • If you are not looking to use the card online, or hold a large baalnce, and will mainly be using it for small payments at places like supermarkets and convenience stores, than a stored value card like Suica may be a better fit.   
    • Even though prepaid cards don’t involve the issue extending credit, you still need to register your personal information and provide ID and proof of address.  If you prefer something you can use instantly and anonymously, then again stored value e-Money like Suica may be a better fit.
    • Invoices that come by mail for things like utility bills can generally only be paid in cash, and not with debit cards.  Generally Nanaco can also be used at 7-11, and other exceptions may apply.  

  • Is Japan a Cash Society?

     One of the myths you will often hear is that Japan is a “Cash Society” – but is it true?  And if so, what does that even mean?  It’s one of those things you hear all the time, but rarely see any hard numbers presented.  

    I take it to mean that Japan is a country where most people use paper money and/or coins to pay for most things most of the time.  A more extreme interpretation might be that you can only use cash to pay for many of your day to day expenses.  If so, I don’t think it’s true at all.  

    There are numerous types of payment you will see in every day life:

    • Cash (paper money and coins)
    • Direct Debits (From bank accounts) – Mainly used for utility bill payments
    • Direct Deposit – Mainly for payroll and refunds
    • Transfers between bank accounts – Often used to send money to friends, pay rent, etc.
    • Contactless IC payment – Including Transportation cards such as Suica, ICOCA and Pasmo.  These can be prepaid (such as the transportation cards mentioned above), as well as cards like WAON, EDY and Nanaco.  Post-paid/realtime standards all exist, including iD and QuickPay.  These can typically be in the form of physical cards or emulated cards on smart phones.  For example, you can get a physical Suica card, or use Mobile Suica on your phone.  These are typically used for small purchases and transportation, and use Sony’s Felica standard almost exclusively.  
    • Credit Cards / Debit Cards – These are Visa, Mastercard, Amex, and JCB.  These use magnetic stripe, IC Chips (with contacts), and occasionally contactless (NFC) ICs, as in the example of Visa Touch.  Contactless payments via NFC is not so popular in Japan, as the above mentioned standards like iD and QuickPay are faster and already entrenched.  The advantage of these cards is that they can typically be used at overseas merchants.  
    • J-Debit – Allows you to use a cash card from a bank to pay at the POS.  
    • QR Code / Bar code / Mobile App payments – These hhave only become popular recently, and include things like Paypay, Yucho Pay, Rakuten Pay, au Pay, etc.  

    You may have noticed that Checks and Money Orders are not on this list.  Technically the both exist, but they are not common for consumer use.  

    First let me say that while the law technically stipulates that companies must pay in cash for employees who request this, most companies in practice require a bank account to set up direct deposit.  This means that for most employees, at least at large companies, they don’t have paper money coming in, and need to go to a bank branch or ATM in order to withdraw cash if needed.  

    Now let’s consider common places where you might spend money, and what payment forms are accepted at each:

    • Convenience Stores – Basically all types, excluding J-Debit.  Using a credit card is probably a slower method at many stores.  Many clients use cash, but Suica and iD are also very popular.  QR Code payment has become more popular in the past few years.  
    • Resteraunts – Most proper resteraunts will accept credit cards, or cash.  Some will accept Suica and other IC cards, or QR-Codes.  
    • Online shopping – Most all online shopping sites will accept credit cards, but often will accept bank transfers/direct debit, and some (such as Amazon) accept mobile Suica.  
    • Supermarkets – (e.g. Summit, Queens Isetan, Kaldi, MyBasket, etc) : Almost all will accept cash, credit cards, Suica, iD, etc.  Many will accept QR code payments.  
    • General Stores – (i.e. Donkihote, tokyo Hands) : Most will accept most of the payment types listed above.
    • Drug Stores (e.g. Matumoto Kyoshi, Koko kara Fine, Tomod’s) – Most will accept most of the payment methods listed above, including cash, credit, Suica, etc., and barcode payment methods.   
    • Family Resteraunts (i.e. Jonathan’s, Saizeria, etc.) – Most allow most of the payment methods listed above.    
    • Home Centers (i.e. Shimachu Homes) – Cash, Credit, and depeding on the chain, other methods such as Suica, iD, QR code payments, etc.  
    • Delivery (i.e. Dominos, Demaikan, Uber Eats, etc.) – Credit Cards, Cash, dPay.  
    • Rent – Typically bank transfers, some larger companies may be able to set up direct debit.  Some smaller landlords might also accept cash.  
    • Tax Bills, Utiltity bills – These can typically be set up to be deducted from your bank account or charged to a credit card automatically each month.  If you have not set these up, you will receive an invoice in the mail with a bar code.  These can be paid at convenience stores in cash, with Nanaco at 7-11, and with various other methods, including apps from the banks.  
    • Electronics Stores (i.e. Bic Camera, Yodobashi Camera, Yamada Denki, etc). – Typically accept any method, including J-Debit.  BIC even accepted BitCoin for a while. 
    • Furniture stores (i.e.  Nittori, Ikea) – Most methods.  Cash and Card for sure.  
    • Dive Bars, very small cafes and resteraunts – Cash, sometimes more options.
    • Small corner vegetable Sellers – Cash, maybe QR Code payments.
    • Vending machines – Cash (coins or bills), Suica.  
    • Taxis – Most in the city will accept Credit Cards, Cash, Suica, iD, and sometimes other methods.  Many of the larger companies also may accept barcode payments and/or have their own app.  Some are operated by individuals, and often these will only accept cash.  

    I think by now you get the point.  

    For eating a quick meal at a family resteraunt, or a quick trip to the supermarket or convenience store, cash is accepted, but most people pay by e-money (Suica, iD, or similar), or by Bar Code (PayPay, au Pay, or similar).  These are faster and more convenient than cash or credit cards, and the small amounts are handled efficiently.  

    For charging at a fancier resteraunt, electronics store, furniture store, or general goods strore, e-Money and Bar Code payments can still be used, but for big ticket items, credit cards / Debit cards tends to dominate.  For example, Suica (and other transportation cards) can only store up to 20,000 JPY at once, so you couldn’t use it to pay for a 500,000 JPY TV or bed.  Nanaco is likewise limited to 70,000 JPY.  Most bar code payment methods also have a limitation, whereas credit cards and cash have no practical limits.  

    Small Shops

    Some very small sellers like the mom & pop vegetable store on the corner don’t accept anything except cash, or may accept only a bar code method like PayPay.  This is because they don’t want to pay any transaction fees, and don’t want to deal with a bank or get expensive cash registers or payment terminals.  Even Suica requires a payment terminal, whereas systems like PayPay only require a phone or a bar code sticker.  The sign up process is easier, and the introductory fees are lower. 

    QR Code / Bar Code Payments & Consumers

    What said, why has there been a boom in QR code style payments other than for small merchants?  On the consumer side, QR code payments are generally less convenient than using something like Suica – but in order to try to gain market share, the QR code/bar code companies have been running campaigns for the last year or so, offering 2% cash back and the like.  I suspect that once the promotional money for these campaigns runs out, the popularity will dwindle somewhat.  

    The Suica Advantage

    There are a few reasons why Suica (and other transportation cards) has enjoyed such longstanding popularity:

    • Speed – Suica cards don’t need to check in with the bank, the balance is stored on the card itself.  A suica card is designed to be used at a busy turnstile, and is specced to allow 10 people to enter per second.  That means a transaction, from start to finishes takes less than 0.10 seconds.  Some readers may think “so what if it takes a couple seconds…” – but when there is a line of people behind you, you want to pay and get out.  When there is a line of people in front of you, you want them to pay and get out, not be fumbling in their wallet, counting coins, unlocking their phone and launching apps, etc.  
    • Flexibility – Suica comes in both mobile and card form, and you don’t need to unlock your phone or open any app to pay.  Neither you nor the store  need an internet connection, either.  Suica can be charged from cash, or by other methods, such as credit card.  
    • Privacy – You don’t have to register a Suica card to your name if you want to be anonymous.  You aren’t forced to give your name, address, ID, phone number, bank account, or any other information.  There is no contract to read and agree to either.  Anyone can buy a Suica card for $20, or create an anonymous Suica card in Google Pay as well.  As a result there are no restrictions on residency, age, citizenship, or anything else.  Truely anyone can get and charge a card any time they like.  You can of course register accounts for safety and convenience if you like.  
    • Ubiquity – Pretty much every person in Japan has a Suica card, or compatible transportation card.  If you have it anyway, then it’s convenient that you can use it to pay for small items.  
    • Eki (Station) – Train stations are some of the most sought after retail locations for merchants, and some of the most convenient locations for consumers to do their shopping.  There are many shopping malls in these stations, like Atre, Ekichika, and many more.  A condition of renting space is that the store much accept Suica (or Pasmo, etc).  This means even stores that ordinarily don’t accept Suica (like Starbucks) are strong-armed into accepting it at many of their locations.  As a result, when shopping in and around train stations, you can be rest assured that whatever else the shops accept, they will accept Suica for sure.
    • Usefulness – If you have some remaining balance on some payment methods and you aren’t going to use them for a while, the money is effectively useless.  For example, if you have 500 JPY left on your PayPay account, you may or may not be able ot use it.  Paypay is accepted many places, so you will probably use it, but if you have PayPay, dPay, au Pay, Yucho Pay, Rakuten Pay, etc., and have $5 on each… some may sit unused for a while.  You may decide to transfer the money back to your bank account in those cases – but with Suica, it’s guaranteed that you can use it to ride the train, subway, or bus, which most everyone does from time to time.  
    • No Mobile Requirement – Suica is supported on mobile devices, but as mentioned above physical cards are supported.  The phones simply emulate a physical card, which means they don’t even need to have battery or internet to use an existing balance or charge from cash.  

    At any rate, I have tried most of the payment methods out there, but I spend almost all of my money via the following:

    1. My Bills are charged to my JCB credit card or direct debit from my bank account.  

    2. I pay paper invoices by Nanaco (but I charge this with cash once per month)

    3. I have an iD/Visa debit card, so I often use iD to pay at places that accept it

    4. I use Suica around the station and places that don’t accept iD (f.e. Kakuyasu)

    5. I use the visa debit card’s card number, or my JCB credit card’s card number for shopping on Amazon and other online purchases (Using Suica to pay online is a minor hassle)

    6. I use cash sometimes at small bars…

    Actually, as a general rule, if a place doesn’t accept Suica or iD, then I figure they must not want my money, and I don’t generally shop there.  

    I really don’t use EDY or QuickPay, because I have found that most places will accept Suica or ID.  I never use Visa Touch because every place that accepts it accepts iD or Suica.  I don’t use the visa (chip) feature of my card if the shop accepts iD, which most do.  JCB isn’t supported by all overseas web sites, so I use Visa in those cases.  

    At any rate, I only very rarely use actual cash, and I don’t use PayPay or similar.  (I have set up some of these apps, such as au Pay and Yucho Pay, but don’t really have an incentive to use them).  

    So the idea that you need to use cash for most day to day expenses is simply false.  You can most likely pay for your coffee, groceries, cleaning supplies, online shopping and most everything else you want using some combination of Suica/iD, Credit/Debit, and bar code/QR Code apps.  

    If you spend a lot of time in dive bars and buy all your groceries from mom & pop corner shops, you aren’t likely to need to carry much cash.  That said, given that there are some places that only accept cash, I would always keep at least 2,000 JPY on me  – just in case.  

    This is perhaps different than what I have seen in some other countries, where *everyone* accepted cashless payments.  For example, it is well known that these days in China, WeChat pay or Ali Pay is seemingly accepted even at the smallest food stalls and similar.  While everyone acts like this is some modern revelation, debit and credit cards are seemingly accepted even for the smallest payments in the US and some other western countries, while many southeast asian countries allow you to pay money through the mobile operator via SMS.  Meanwhile, Japan has had Suica and Mobile Suica since well before WeChat was a gleam in the creator’s eye.  

  • Why Foreign Banks Can’t Compete

     As I am sure most people know, banks accept deposits from customers, and then pay interest.  This costs the bank money.

    Banks also typically lend money out for business loans, home loans ,and other types of loans on which they of course charge interest.  

    Basically, the way banks have historically made profit is that they borrow money from depositors, lend that money out, charge interest, pay some percentage of that back to the depositors, and keep the rest for themselves.  

    Here are some average numbers from the United States as of the end of 2022.

    • Car Loan – 3.3% – 5.99%
    • Savings Account – 3.3% – 4.35 %
    • Standard Home Loan 5.5% – 6%
    • Business Loans (bank) – 4.2% – 4.5%

    As an example, an average consumer might put money into the bank, which pays them 3.3% interest.  The bank lends that money out as a home loan at 6%.  That gives them a 2.7% margin.    Since the banks have many millions of depositors, many thousands of home loans, and are operating billions of dollars, this more than covers their cost for renting expensive bank buildings and paying their employees, and leaves plenty of profit for returning to investors, expansion, etc.  

    Sadly banks in the US have gotten into less honorable, but more profitable operations such as pay day loans, title loans, and credit cards – but we’ll leave that discussion for another day.  

    The point is: banks in the US, and in most countries, have a large customer base and a wide percentage point spread to work with.  

    So how about Japan?

    I’ll use Mitsubishi UFJ Bank as an example: 

    • Normal Deposit Account (Futsuu Yokin Kouza): 0.0010%
    • Variable Rate Home Loans: 0.345% – 0.475%

    Yes, you read that correctly: The interest rate they charge on home loans is less than half a percentage point in the most expensive case!  10 year fixed rate loans are closer to 1%, but that’s still extremely cheap compared to most countries.  

    These rates aren’t special to Mutsubishi either.  As of this writing, Sony bank charges 0.397% (if you put a 10% deposit), and SBI Shinsei Bank charges 0.320%

    What that means is that the bank has to lend out the money, collect the payments, pay their rent, employee payroll, IT fees, utility bills, taxes, pay for losses on bad loans, and then pay interest back to the depositors.  It’s no wonder the rate on deposit accounts is essentially zero.  

    If you are willing to lock your money away for a year or more, then you can get an increased rate of return, say.. 0.0020%!  

    Having to live on a margin of less than 0.5% of interest requires massive scale and low costs.  A foreign bank operating in Japan is by its very nature likely going to have a small scale and higher costs.  

    Because of this, the two main foreign banks operating in Japan both closed their retail branches in the past 10 years.  

    HSBC closed all of their retail/consumer operations and fled a number of years back.  Their branches were simply closed as they said goodbye to their customers.  

    Citibank also operated in Japan, essentially catering to rich foreignors, and also closed.  This was not just to profit crunch, Citibank Japan was punished by the Japanese government multiple times for dealing with the Yakuza.  

    In the case of Citibank, though, SMBC Trust Bank took over the operations, absorbing citi Japan into  SMBC Trust Bank in 2015, and branding it “Prestia”.

    Because of this history Prestia is one of the only banks  where most everything is available in English, and one of the only banks to charge a monthly fee just for having an account (Depending on your balance).