GoldenGoose

Author: Administrator

  • The Basic Bank Account in Japan – Types of Banks

     There are several national mega banks, numerous regional and local banks, as well as many online banks.  The lines between these are a bit blurred in some cases, but these are the three main categories for practical purposes.  

    Mega banks will have the most branches around the country, and you can walk into one any time you need to do some paperwork, etc.  

    Regional and local banks will often offer your better deals on interest rates, etc., but may not have ATMs all around the country.  

    Online banks will generally offer the best deals, and the best online banking, but have few or no physical branches.  The other banks also have online banking, though the available features often lag behind the online banks.  

    Examples of Mega Banks:

    • Mitsubishi UFJ Bank (MUFJ)
    • Sumitomo Mitsui Banking Corporation (SMBC)
    • Mizuho Bank
    • Japan Post Bank (JP Bank) – Run by the post office
    • Resona Bank

    Examples of Regional Banks:

    • Chiba Bank
    • Yokohama Bank
    • Tokyo Star Bank

    Examples of Online Banks:

    • Sony Bank (Moneykit)
    • Seven Bank (Run by 7-11)
    • Rakuten Bank
    • PayPay bank (Previously Japan Net Bank)
    • au Jibun Bank
    • Aeon Bank

    Credit unions are a thing, they are called Shinyokumiai, or “Shinkumi” for short.  They are not so common, though.  

    There are also so called “Trust” banks in Japan, which we will cover in the future.  

    Investment banks are also common, usually being linked to a “normal” consumer bank.  

  • Net Bank Update: JRE Bank＆Sumishin SBI NEOBANK

     The term “Net bank” has always seemed silly to me, as internet banks still have employees and presumably offices, and “normal banks” still have internet banking these days – so it’s a relatively pointless line in the sand.  Money is mostly virtual anyway.  

    That said, many so-called Net Banks don’t have any branches that customers can visit.  Even Sony Bank closed their branch office due to Covid.  Since Mega-Banks have to pay rent for lots of huge offices, they tend to charge higher interest rates for loans, pay [even] lower interest rates for deposits, and charge more fees.

    To stop from bleeding customers, some of the Mega-banks have started their own net banks.  For example, Mitsubishi launched Jibun Bank in a joint venture with au.  

    Some people, especially the older generations, feel “safety” and “trust” with the famous mega-banks like Mizuho and Mitsubishi – but given that all accounts are insured with the government, there is no real safety advantage to having an account with one of these banks over a small regional bank or net bank.    

    A more recent development is that some banks are offering their banking infrastructure and certifications for rent to other clients in much the same way that major mobile phone carriers offer their infrastructure for resale to others carriers.  

    There were already a lot of companies participating in this, but most did not offer any special advantage, except if you bought a lot of stuff at a certain store.  For example, much as there is a Bic Camera Credit card, there is a “Takashimaya Bank”, where it is just Shinsei SBI Neobank re-branded to Takashimaya bank.  Takashimaya is just a department store, so they don’t actually have approval from regulators to create an actual bank, nor do they have the infrastructure, etc. – but they can outsource Sumishin SBI to offer a branded banking service and presumably all parties involved benefit.  (Note that the English word “Bank” has no legal meaning in Japan, so they can call themselves a “Bank” all they want, and it’s just fashion).  

     Department stores aren’t interesting to me – but you know what is?  Japan Rail.  Why?  Well everyone takes the train.  View Card is one of the best credit cards in Japan because the points you earn are JRE points, which can be used to charge Mobile Suica – rendering them effectively the same as cash.  No limited catalogs full of stuff you don’t want that is super overpriced, no discounts on services you’ll never use – none of that – just points you can spend as money anywhere.  

    But what if you want to use a debit card instead of credit card?  Well Japan Rail East thought it was time to come up with a solution to this, and thus “JRE Bank” was born.  

    It’s a service offered by Rakuten bank, but it’s separate enough that you can sidestep the usual “one account per person” restriction and set up an account with JRE bank even if you already have a Rakuten account.  

    The main advantage over a normal Rakuten account is that you can earn JRE points by using your debit card, and depending on various conditions, such as setting your payroll to be deposited in your JRE Bank account, setting your View Card to deduct from there, etc., you can earn enormous discounts on train tickets.  

    So, it’s good for anyone who might want to take the train… which is basically everyone.   This has taken the Japanese internet by storm, but.. yeah okay so you get points and cheap train tickets.  This is great, but not even the best part to me.

    See, I’ve had a longstanding problem:

    1. I shop (and drink) at some places that only take cash.

    2. I don’t want to carry a lot of cash.  I want to set spending limits.

    3. Because of the above, I need to go to the ATM often.

    4. Most mega-banks offer free ATM service, but their ATMs have very limited operating hours, or are not so many in number.  (For example, SMBC Prestia ATMs operate nearly 24/7 and are always free to use, but they only have 14 ATMs in Tokyo).  Mitsubishi has more ATMs, and some of them are open late, but they charge 110 JPY after 9pm!

    5. Most internet banks let you use Conbini ATMs for free (since they don’t have their own ATMs), but only a few times per month.  After that, you have to pay.  

    I like Rakuten, because it is the only bank I know of that lets you set a daily limit of less than 10,000 JPY on withdrawals, and it also lets you set times and locations where withdrawals can/can’t be made.  

    As an example, I can set the following:

    a. Only up to 8000 JPY per day.

    b. Only between 9am to 2am

    c. Only in Tokyo or Kanagawa

    This is a pretty good system to stop any kind of fraud or misuse, and also for even for threats and self control.  

    But… if you are limiting yourself to less than 10,000 JPY then you will need to use the ATM more often.  This is exactly what I want – but I don’t want to pay all the fees!  

    If only there was a bank that let you set up such limits, but also had ubiquitous ATMs in many locations that were free to use for long hours.  

    Enter JR bank.  Since it’s based on Rakuten Bank’s systems, JRE Bank allows the same sort of fine tuned security settings.  It also has a key difference from normal Rankuten bank accounts – unlimited use of View Altte ATMs.  Given that basically every JR station has a View Altte ATM, you can use the ATM for free most places you go shopping.  Sure, if you live near a subway station, there may not be a JR station nearby, but you will probably pass one on the way to work or shopping.  If not, you can also use Conbini ATMs for free a few times of month.  (Up to 7 times if you keep a massive amount of money with them).  

    JR stations are also typically open long hours, typically closing after midnight and opening by 5am.  What’s more, the ATMs are sometimes located on the outside of the station – in which case you can use them even when the station is closed.  W

    In case there is no View Altte ATM and you use a Conbini ATM it will cost 220 JPY if you don’t have any more free withdrawals left for the month, regardless of the time of day.  Not the cheapest or the most expensive.  

    —-

    The other strong contender for ATM use is Sumishin SBI Neobank.  Just by setting up an account and linking it with your mobile phone, you can use the ATM for free 5 times per month.  

    The first thing to know about Sumishin SBI is that being basically a net bank, they don’t really have their own ATMs.  Having said that, you can use Conbini ATMs, Japan Post ATMs, and also View Altte ARMs.  Impressively, even when you don’t have any free withdrawals left, they only charge you 110 JPY for using a Conbini or View Altte ATM – regardless of the time of day.  

    Like Rakuten and JRE Bank, they also have a rank system where you can earn more free withdrawals based on various conditions, but the difference is that their terms are very generous.  

    At the lowest rank, you only get one time for free, but all you have to do is log in with your smart phone to reach rank 2, which will give you 5 free withdrawals per month.  

    Reaching rank 3 is still not too difficult, and will give you 10 free withdrawals per month for free.  I suspect this would be enough for most people.  

    Rank 4 is a bit more difficult to reach for free, but you get 20 free withdrawals per month!  That means you could visit the ATM basically every weekday to withdraw your lunch money and still not pay any fees.  

    Note: This was recently changed from unlimited to 20 times per month, so you know there were some people using the ATM three times per day or something.  

    The easiest way to reach rank 4 without keeping a huge amount of money in your account is simply to pay for it by signing up for the  Platinum Debit Card (Mastercard).  The cost is something like 11,000 JPY (although the first year is free with some conditions).  

    20 free withdrawals per month x 12 months = 240 free withdrawals.

    11,000 / 240 = ~46 JPY per withdrawal.  

    I am guessing that they are literally just charging what they are paying to the ATM providers.

    Of course, since it’s a platinum card, it comes with other dubious benefits like airport lounge access, vacation & mobile device insurance, etc.  The most important benefit (besides the increase in free ATM withdrawals) is that you earn points at a rate of 1%, and those points can be converted to cash back.  Granted, you would have to spend 110,000 on the card in a year to make the cash back actually cover the annual fee for the card.  

    Still, if you want to use the ATM often, and are not near a JR station, then Sumishin SBI is a solid option.

  • Has Japan become poor?

    Ever since the bubble in the 80s, people in Japan have been saying how they are poor now.  Sure, compared with the bubble period, the average income has decreased – but by definition, that’s always going to be the case with any bubble.  

    In checking figures, I am purposely choosing a measure that makes Japan look poorer than it is.   That is Annual Household Income Per Capita in USD.  Why is this measure pessimistic? 

        Well, Japan has a lot of single earner households, so looking at the household figure will make this look lower for countries like Japan, and better for countries that have multiple income earners.  What’s more, many Japanese households have extended family members like grandparents living together with the family which lowers the number further.  This is still to some extent fair, since after all, all of the family members need to eat.  

        Secondly, the yen has been weak against the USD lately, which means that these figured will look lower than the actual drop in purchasing power due to inflation.  Again, this figure is not completely unfair since many goods for sale in Japan are purchased from overseas, and some of those are paid for in USD.  On the other hand, many goods are produced domestically, so the exchange rate doesn’t matter as much for those.  

        The average Japan household income per capita in 2024 was $15,500 USD.  (Compared with $22.7k in 2012 and $14.8k in 2002).  

        For reference, here is the same number for the following countries:

    • China: $4,805
    • France: $28,072
    • Germany: $33,631
    • Malaysia: $5,731
    • Mexico: $3,690
    • Singapore: $38,976
    • South Korea: $19,230
    • Switzerland: $60,075
    • Taiwan: $16,605
    • Thailand: $3,740
    • UK: 34,805
    • USA: $40,722

    Looking at this, Japan is well above most other countries in Asia, but loses to Korea and Singapore, and just barely to Taiwan.  European and North American countries are quite a bit higher.

    Looking at a more forgiving number, the average salary in Japan, the number is 6,200,000 for 2024, which works out to $39,818 using the exchange rate from 2024-May.  The number is 6,400,000 for 2025, which works out to $44,471 at current (June 2025) rates.  

    Using the 2024 number, you can think of this as being basically $62k USD when purchasing local goods, and $39k when purchasing foreign goods.   Since most people purchase a mix of local and foreign goods the reality is somewhere in the middle.  

    When you divide by the number of family members per household, the number drops to the $15k USD number listed above.  For most families, the most important components of that will be housing and food.  

    Housing in Japan is not directly affected by exchange rates, and is relatively stable.  Even in Tokyo, housing is also very much cheaper than housing in large Western cities.  Medical care is also inexpensive compared to countries such as the US.  

    This means that even with a relatively lower salary, there may actually be more disposable income.

    Having said that, there has been mild inflation in the last year, and certain goods have risen more than average.  To consumers not used to yearly inflation, this has come as a shock.  People tend to notice the things that have gone up more than the average, and not notice the things that have actually dropped in price.  

    Since it isn’t fair to compare these numbers directly when the cost of living is significantly different, there is a concept called Purchasing Power Parity, which allows you to adjust the numbers for the cost of living in each country.  When you do that, you’ll see things quite a bit differently.  

    In this chart, you can see that the adjusted household income is more like $20k after adjusting for purchasing power.  This still doesn’t mean that people are living half the lifestyle they would have in the US, because the conversion rate doesn’t fully account for transportation and housing being cheaper – or interest rates being so much lower in Japan.  

    Many companies have started instituting salary raises based on cost of living, but it will be a while before these policies are widely in place and keeping up with inflation.  

    In the meantime, the situation continues to be that the average Japan is “poorer” than they were during the bubble years, but not poor by any means.  The last two years have seen inflation after over a decade without it, which will make a lot of people feel a bit poorer for a few years while they get used to the change.  This is mainly relevant to the average person with respect to food prices.  

    Many people in Japan seem convinced that Chinese people are rich.  This comes from several observations:

    1. China surpassed Japan to become the world’s 2nd largest economy by GDP in 2008 (This is based on perhaps suspicious figured provided by the Chinese government, but even if the real date was 2009 or so, it’s certainly #2 by now).

    2. Japanese people see rich tourists visiting Japan all the time and spending a lot of money.  

    What people don’t necessarily realize is that comparing GDP is not meaningful when countries have a population difference of around 10 times.  In fact, having a population that is 10x larger with around the same GDP simply means the average GDP per capita  of China is roughly 10% of Japan’s.  

    Using the latest numbers (October, 2024) of GDP per capita, China has $13,870 while Japan has $35,610.  These numbers don’t add up, but one thing is clear, the average income per person is much lower in China than in Japan.  The numbers for South Korea and Taiwan are very similar to Japan, while Singapore clocks in at $93,960!  

    So yes, the numbers in China have been on the rise, and the numbers in Japan have been falling, but a large part of that is due to the unfavorable exchange rates.  These numbers will likely improve when the US lowers interest rates.  Also, note that the average income in Japan is roughly 3x that of China using most any measure.  

    The issue with China is that:

    1. There is a very large population, so even is you only look at the top 1% earners, there will be a lot of people.  Some of those people will want to come to Japan.

    2. Income inequality in China is much worse than in Japan or the US.    

    And only the wealthy Chinese people will be tourists coming to Japan to spend their money.  This is of course true in general with tourists to any country.  Add to this the fact that the weak yen has made Japan an attractive market for tourist recently, and it shouldn’t be surprising to see many visitors from other nearby Asian countries.  This is neither good nor bad, just a reality.  It does mean, though, that people in Japan shouldn’t assume that suddenly all Chinese are wealthy – because that is certainly not the case.  

    There has also been a fear in some countries, including the US and Japan, that foreigners will buy up all the land.  It seems to me that this fear is semi-valid, but the solution is simple.  Some countries, such as India and Thailand don’t allow foreigners to buy land at all.  While that seems a bit overkill, it would be easy enough to implement a  system where we only sell land to citizens of countries who also allow Japanese people to buy land there.  This would immediately rule out China, since even locals can only “buy” land from the government there for 70 years, which is technically renting.  

    Back to the point of the article.  It’s true that with the weak yen and inflation, things are feeling more expensive in the few years so – in fact prices have increased about 10% in the last 5 years.  That’s in line with the inflation rates of most developed economies, by across the board increases with salary have not yet caught up for everyone.  

    On the other hand, it’s also true that you can get a livable apartment in one of the safest and most vibrant cities in the world (and one that also happens to be the biggest), in a democratic country with a rich culture, and fantastic public transport –  for under $500 per month.  You can likewise eat for around the same amount – meaning you can live a reasonable life in the biggest city on earth even at minimum wage.  

    Sources:

    https://www.ceicdata.com/en/indicator/japan/annual-household-income-per-capita
    https://www.salaryexplorer.com/average-salary-wage-comparison-japan-c107
    https://www.imf.org/external/datamapper/NGDPDPC@WEO/CHN/HKG/JPN/KOR/SGP/TWN

  • Modern Mind Control

    It’s a fact of life that without conscious attention and prevention, people tend to adjust their lifestyle to match their income. I always thought “Oh, that won’t happen to me” – but it did.

    If you were earning an minimum wage and you saw an advert for a 50 man yen handbag, you wouldn’t even think about buying it. If you were earning 1000 man per year, you might think “Oh that looks nice. Sure, it’s a bit pricey, but I work hard – I deserve it”.

    If you earn minimum wage, you likely only buy new clothes when you really have to, and then you buy them from Seiyu, GU or some place similarly cheap. When you earn more, maybe it’s Uniqlo or Muji. Then you earn more, and Montbell and The North Face don’t seem so bad. Unchecked, if your salary keeps increasing, eventually you end up in the territory of Gucci and Prada.

    Sadly, this is by design.

    Let’s take a step back – What is the point of earning more money in the first place? I would say it is to give you the freedom to do what you want. To spend your time how you want, with the people you want, doing what you want. I think most people, if they really sat down and thought about it would agree. It’s easy to lose sign of this, though.

    If you hang out with friends in your income bracket, then it might not seem unreasonable to wear the same brands that they wear – in fact, you might have a desire to do so in order to fit in. People might not always consciously think about it, but they have some desire to advertise their status, and wearing an expensive coat or watch is a way to do that. In reality, most people don’t care what kind of watch you wear as much as how nice you are to them.

    Another factor is that sometimes buying a more expensive product is actually a better deal. If the clothes you buy at Seiyu fall apart after a few wash cycles and don’t fit well, then clothes from Uniqlo may well be a better deal. Likewise, clothes from Montbell might cost twice as much as those from Uniqlo, but that’s okay if they last 4 times longer. The problem is that this trend doesn’t continue. A Gucci T-Shirt is still just a T-Shirt, and it won’t last forever – but the debt incurred on your credit card bill might.

    Since this doesn’t happen all at once, but creeps up on us, it can be hard for many people to notice. Most people don’t think they are being luxurious even when they buy luxury brands – but they may feel like “it seems like I work and work but I just can’t get ahead”.

    Again, this is by design.

    The fashion industry is one of the worst offenders, so I will continue on that theme. To give a relatively benign example, a single company, Fast Retailing owns both GU and UniQlo. While both brands are known in Japan for being inexpensive, GU is the budget brand. If we look at it charitably, the GU brand exists to give reasonable options to those with less means. If we look at it less charitably, UniQlo exists to suck more money from those who have it. I think UniQlo clothing is genuinely better and doesn’t cost much more, but this type of segmenting exists all over the place, and much of it is less innocent.

    Imagine you walk into 7-11 and want to buy a can of bear. There is no price tag, and instead they tell you the price at the register after you scan your point card. As part of the point card program, you have to certify your income to 7-11 once per year by giving them a copy of your tax return. They adjust their prices based on your income. Is your income 400 man? That will be 150 yen. what? Your income is 800 man? That will be 400 yen please.

    That sort of price discrimination is generally reviled by the public at large, and luckily the dystopian point system I described above doesn’t exist – but something similar to it does.

    Let’s give an example with the iPhone.

    The iPhone 17 SE 64 GB version is estimated to cost about 25000 JPY to produce, but sells for 59800 JPY before tax. That is an astounding 58% profit margin.

    The iPhone 17 SE 256 GB version is estimated to cost about 28000 JPY to produce. In other words, that extra memory only costs only 3000 JPY. You might expect the price to be something like 62000 JPY then. In actuality, it costs 74800 JPY! They aren’t passing the cost along to the consumer, nor are they trying to maintain the same profit margin – they are charging enough to reap a 63% profit margin.

    And this continues – If you look at the iPhone Pro 17 1 TB version, the profit margin is 66%

    They have simply decided that rich people are willing to be ripped off more, so let’s charge them not just more, but a higher percentage markup. (And… you can be sure this is part of why iPhones don’t support add-on Micro SD memory).

    This is price discrimination if I have ever seen it, but it is termed the more corporate friendly “Value Based Pricing” by companies. The argument goes like this “We are charging the rich people a higher markup so that we can bring products to the less well off for less than we would otherwise have to charge”. Wow, so my rich uncle buys a fancy iPhone Pro Max and the profits from that subsidize my cheap iPhone SE? Except of course that’s not what really happens. The iPhone SE still sells not at a loss, but at a 18% markup.

    This happens with clothes, cars, computers, phones, and more. It can be better enforced with electronic items when the ability to upgrade after purchase is limited, which is a large part of why you see soldered on SSD and Memory on many newer laptops and such a resistance to the “right to repair” movement.

    Existing brands are constantly introducing new sub-brands to try to capture the absolute maximum amount of money they can from consumers. Too poor to buy Dolce & Gabana? We still want your money – Try D&G instead. The opposite happens as well. The already eye-watering prices of Moncler coats are outdone by the “Moncler O” line, purchased by those affluent consumers who don’t want to be seen as mere commoners.

    Even more silly, some brands will purposely produce “limited edition” models that they will only sell to people who already have VIP status from purchasing lots of stuff already. For example, certain Rolex watch models can only be purchased by existing VIP clients.

    In general, if you hear “this is exclusive”, rather than getting excited, you should consider if you really need it. Okay, so only 100 of that watch is made – so what? Is it that important to show off?

    The point here is that many, many millions of dollars are spent on “lifestyle marketing” to convince you that you have to have things that, if they never existed, you would never have wanted in the first place.

    It’s easy when someone asks you why you bought something to simply say “because I wanted it” – but why did you want it? Many times, it’s because someone spent a lot of time and effort to make sure you did.

    At the end of the day, it you hadn’t had the money to buy something, and thus not bought it, would your life be worse in some tangible way? Would you have less friends? Less job satisfaction? Value your free time less? In most cases, the answer to these questions is no.

    Spending millions of dollars to determine the exact right way to segment, position, advertise, and price goods seems like mind control to me. Tricking people into wanting something they don’t really want certainly qualifies.

    If you ignore all the static and stick to what you really need, then what would be different is that these companies would be less wealthy, and you would be more wealthy. Realize this: Knowing that you have money in the bank and you don’t have to worry about the next recession or unpleasant surprise is probably going to make you a lot happier than a new LV bag or Ferrari. Next time you are thinking of making a purchase for something that costs more than the average price for items in that category, think for a moment about why you are making that purchase.

  • How much risk is too much?

    Let me start by telling you about my strategy and why it’s probably not the best one for you. I invest about 70% of my income, and almost all of it into a single global index fund.

    But I have a few things that make this make sense:

    1. My house is paid for already
    2. I don’t have car payments
    3. I’ve learned to be frugal and tone down my lifestyle
    4. I have a decently high income
    5. I have lost a lot of time baying off student loans and the like
    6. I have paid off all of my debts and have an emergency fund

    So I am making more than most people in Japan, but in a sense I started investing late. Since I don’t have the advantage of time, I am trying to make up for that by contributing a lot more. Had I started 10 years earlier, I would only need to contribute roughly half as much.

    Friends have asked me about my investment strategy and said “Oh that is smart.. I’ll do that too!” Imitation is the highest form of flattery and all that – but some of these people have credit card debt and no emergency fund. Some fave dependents they need to take care of. Some are younger than me, and most have less earning power.

    I don’t just think that trying to pick stocks, gamble with FX or options, or “invest” in cryptocurrency are too risky for almost everyone – I believe that investing all of your cash flow into an index fund is still too risky.

    First, it doesn’t make sense to invest in a an index fund with an expected wobbly ~7% return (on which you will have to pay taxes in many cases) when you have credit card debt at 12%. If you realize this (as I did) then you need to become ruthless about paying down your consumer debt. Anything over 4% needs to go, for sore – and as quickly as humanly possible Let me say it plainly: You can never invest if you owe consumer debt.

    That cold harsh reality hit me a few years ago, and I just stopped. No more new phones, no more new computers, no more fancy clothes, no more cafe lattes at Tully’s coffee, and especially no more drinking and karaoke with co-workers. No more eating out. I just went scorched earth for 2 years and paid everything off. Student loans, credit cards – everything. Neew new clothes? Muji or Uniqlo. Need to eat? Cook it. Paying off your debt is something that just needs to be done now if you are interested in financial freedom. Living below your means isn’t as fun, to be sure, but not only will you need to do that to pay off debt – you will need to do it in order to invest too – so it’s good practice.

    Secondly, if you are most people, you need an emergency fund. I added this later, because I know I would be tempted to spend it if there was cash laying around – but you need a way to cover unexpected short term expenses, and a credit card usually isn’t the best option.

    Finally, even once you have paid off your debt and built up an emergency fund, you also need peace of mind. It’s easy to say “I will be fine if my portfolio drops 30%”, but most people react differently when it actually happens. I know I don’t, since it’s happened multiple times – but most people do. There is a simple way to tame the volatility of the stock market – just keep some portion of your money in cash.

    You don’t need to get fancy with precious metals, bonds, or foreign currencies – just keep some percentage as cash. For example, if half of your portfolio is in cash, then when the market suddenly drops by 30%, your holdings only drop by 15%. The same, of course, is true on the upside – but you need to be able to hold your position in order to make the earnings you deserve in the long term. If you say to yourself “I want that juicy 7% return, so I am going all in on stocks!”, but then you can’t sleep or start considering selling the first time the market drops 30% – well then were never going to earn that fabled 7% anyway.

    So, I implore you to think deeply about how much you are really going to mind when the market drops – because it certainly will. Calibrate your investment ratio based on that. maybe 20% cash is enough for you, maybe you need 60%. There’s no shame in that. None at all. You will be giving up some long term returns in theory – but you will be more likely to stay the course and at least get the projected returns you deserve. Holding cash isn’t actually more conservative in this case, it’s more bold in a way. You are essentially saying “If I have this much in cash, then I can promise myself not to sell at the bottom of the market and lose money” – and that is the most important thing of all.

    You can always adjust your ratio as time goes on and you find out what lets you sleep at night. If the market drops 50% and it doesn’t bother you that much, then perhaps you can reduce your cash position. It will be an opportune time to buy stocks at a discount, after all. If that 50% shocks you to the core and causes sleepless nights, then start saving more cash rather than selling the stocks you already own. This ratio is deeply personal and different for everyone – there is no right or wrong. Someone with more mouths to feed would probably be better to have more cash, while someone who has a very stable government job might need less on hand. The “right” amount of risk is the amount that keeps you in the market for the long term.

  • Is buying Japanese Government Bonds in 2026 worth it?

    There have been a lot of posts online recently which basically say something like “Buying government bonds that only yield around 1% when the inflation rate is closer to 2% is nonsense! Only a fool would do that!”

    That’s just silly. Assuming that were true, the corollary would be that holding cash is even more foolish, because it earns no interest at all. And yet people do, and should hold cash.

    Ideally, for most people, their money should be separated into two buckets:

    1. Short term money – held in domestic cash.
    2. Long term money – held in investments, such as stock indexes.

    I’ll gloss over the definition of “short term” here, except to say that I would use a rough cut-off of 5 years. Likewise, long-term implies anything over 10 years.

    This is because you can’t pay your electric bill or rent with stocks, bonds, real estate, or gold. You need to sell those things, and then use the proceeds to buy things. Not only can the value of these things fluctuate in the short term, there are often transaction fees associated with buying and selling.

    Besides covering monthly expenses, cash also lets you keep your options open, so that you can afford to spend money even when the stock market or price of gold is down. In other words, it can help prevent you from needing to sell at a loss.

    Yet notice that there is a gap between the 5 and 10 year numbers. Even if you used 1 and 15 years instead, there would be a gap. There is always going to be a gap, and you can exploit that gap by investing in very low risk assets that earn at least some return.

    Say you have 10,000,000 yen. You decide you need 200,000 yen per month for living expenses, and you are happy with a 3 month buffer. That means you have 600,000 sitting around in cash, with 400,000 left over for investing. In this kind of case, I don’t really see the use of government bonds, because the amounts involved are small enough to perhaps not be worth the effort.

    If you have instead 100,000,000 yen, the same 200,000 yen monthly expenses, and want a 6 month buffer – well then you might opt 600,000 in cash, and another 600,000 in government bonds. You can invest the rest knowing that you have a 6 month buffer, and if the worst does happen, you will have plenty of time to sell the government bonds during the first 3 months. Since you probably won’t have to sell them, you can collect interest on them in the majority of cases.

    Another thing to keep in mind is that holding cash or bonds isn’t foolish just because they earn less than inflation – you just want your overall portfolio to at least keep op with inflation. If half of your money is earning 8%, and the other half is earning 0%, then you are earning 4% on average. If you convert half of the 0% cash into bonds that earn 1%, then you will be earning above 4% on average while taking on close to zero additional risk. (Sure, the government might fail in some doomsday scenario, but in that case paper money would be worthless too).

  • What is the value of wealth?

    In my estimation, money can buy your 4 different things:

    1. Stuff
    2. Services
    3. Time
    4. Options

    Stuff is the most obvious of these. Money can buy you that new Sony Xperia Phone, that new MacBook Pro, that fancy new car, or high brand clothes. Material things in general tend to lose value quickly, and we usually grow bored of them more quickly than we think we will.

    Services could be anything from insurance on that fancy car, a flight to Paris, lodging and a lift ticket for your ski trip, or something like a hair cut or medical care.

    What about time? Well, this usually comes about from buying things or services that save you time. For example, you can buy a washing machine, a dishwasher, or a robot vacuum cleaner. All will do some labor for you that would have taken you time and effort. Something like a trip to the barber might be along the same lines. People with higher incomes tend to spend more on this type of thing because their time may be a lot more valuable. For example, if you are an independent attorney you might well rather spend an extra hour on a case where you can bill 10,000 yen for that hour as opposed to spending it hand washing clothes in the bath tub – which you probably aren’t particularly good at anyway.

    Options, or flexibility, is probably the most overlooked category. If you decide to forgo spending money on that fancy car now, it opens up the possibility that you could buy an even fancier car later – or a fancy car and a new coffee machine, or pay for a down payment on a new house, or be more generous with your friends and family. Knowing that they have options also tends to give people peace of mind.

    If you spend all of your income as soon as you make it, you can buy all the material stuff and services you want, but you will forever be lacking options.

  • What is Risk?

    If you study finance in college like I did, one of the first terms you will hear is “risk” – but what does it mean, really?

    I would propose the following: “Risk” as it is defined in finance does not mean what many people think it does.

    You will often hear “High risk = high return” and conversely “Low risk entails low returns”. This is used to mean that investing in stocks is riskier than investing in corporate bonds, which is riskier than investing in treasury bonds, which is riskier than holding cash – but as you take on more risk you will get a higher average return. Risk in this context means volatility – how much the market price varies from day to day.

    For example, let’s suspend reality and assume for a moment that the notions we hold about the US stock market are true. We will assume that the average return, and the standard deviation of those returns are a set fact. I believe this is actually more or less the case for the foreseeable future, but it’s a matter of opinion, so let’s just stipulate that it’s mathematical fact for purposes of argument.

    If this is the case, then there is roughly a 50% chance that the stock market will lose money on any single day. Looking at the opposite extreme, there is a 100% chance that you will make money in the stock market if you buy and hold the market for 20 years. This is historically true, and if you believe the statistical properties you can derive from past data, then it is also basically true going forward. So, you might say that investing in stocks for a period of 20 years or more is “risk free”.

    Since we are talking about Japan, we can look at inflation adjusted numbers for the Nikke 225 and TOPIX over the last 20 years for comparison:

    • 142% for the Nikkei 225
    • 238% for the TOPIX

    In fact, neither of these indexes has ever lost money in real terms over a rolling 20 year period.

    On the other hand, holding onto cash is very risky – or put a different way, “risk free” in the negative sense. There is nearly a 100% chance that it will lose significant purchasing power over the same 20 years. Yes, Japan did have a bout of deflation, but that is a blip in the history of currency movements world-wide. Even with the long period of deflation, the real value of the yen fell 21% over than last 20 years.

    That means if you started with 10 man yen invested in the Nikkei 225 10 years ago, you would now have 310,000 JPY today. If you held it in cash, you would have, well, 100,000 JPY today. The Yen has dropped in value in either case, but at least by investing in the Nikkei you gained a lot more than the Yen lost (And this is ignoring the dividends you would have received in the meantime).

    The fact that you would have gained more by investing isn’t really the point – that’s almost a given. Rather, the point is that if you believe that we know the statistical properties of the market, and that those aren’t going to fundamentally change in our lifetimes, then you made those gains by taking on now additional risk. We “knew” that over 20 years, you had basically a 100% chance of making money, and we knew on average how much it would be.

    So when you hear the financial news talk about “risk”, know that they are talking about the day to day swings. Technically speaking, this usually means variance or related measures like the standard deviation – but what they are really talking about is the difference between the expected returns (i.e. the average returns) vs. the actual returns. These are just measurements to tell you how random the market is, how messy the trend line is.

    Since we endorse index funds, this mainly refers to systematic market risk. To be sure, the market can fall because of an earthquake, a pandemic, or a rainy day. The market can also rise with a new PM, new treaties, or nice weather.

    If you zoom out, though, all of this noise fades into the background. In this context, “Risk” means the waviness of a line, which really just indicates how long you should look to stay invested to ensure making a profit.

    Assuming there are no large fundamental changes to the market, risk fades to zero over the long term. Importantly, this long term is still much shorter than a human lifetime.

    So that’s it, then, right? Simply invest all your money into the market for at least 20 years, and you have guaranteed profit? Well, sort-of.

    The problem in real life is that there are different kinds of “risks”, like the risk that you will lose your job, that the economy will tank, that you will need to fix your roof, move, etc. Those risks require a buffer of money so as to avoid needing to remove money from your investments – otherwise you can’t keep your money invested for 20 years.

    In my experience, people underestimate the chance that something surprising will happen. Nobody expected 9.11 or 3.11, and people don’t expect to get divorced, hate their job, or get into a car accident, etc., either.

    To those who think that the stock market has, or will fundamentally change – maybe you’re right, but everyone who has thought so in the past has been wrong. I believe that sitting on the sidelines is a far greater risk. If you aren’t confident about Japan’s future, fine, invest internationally. If you are worried about the global stock market, then what you are really worried about is the future of humanity. The stock market is made up of businesses, and I believe that profitable businesses will always exist and that it will always make sense to invest in them.

    What has changed is that our generation has the ability to easily invest in thousands of businesses worldwide at the touch of a button, starting with small amounts, and often for free – and tax free. Investing used to be only for those who were already wealthy, so I treat this democratization of finance as relatively recent privilege that that more people should take advantage of.

    In the end, I believe you can make money in the stock market “risk free” – but it requires having enough of a cushion to cover life’s risks. I think more people should invest, and people should invest more, but I also think that many investors keep too little of their portfolio cash. How much is the right amount? The amount that lets you cover the unexpected and lets you sleep at night. Any more than that, and you are missing out on the returns of the stock market. Any less, and you might be tempted to sell at the worst time – and that is the worst risk.

  • The role of room for error

    If you ask most people with little investing experience how much they want to make, the answer is usually something like “As much as possible”. Likewise, if you ask about their target date, they will say “As soon as possible!” Yes, sure, we all want to be wealthy today, not tomorrow. That’s not how things work though.

    Let me be the first to say I am not the biggest fan of “life plans”. When you go to see the average financial planner, they will set up some parameters, using your current age, income, expected retirement date, etc., and say “Okay.. the market average returns are X%, and you have Y years. You will want to have Z% of your salary to spend in retirement, of which W% should be covered by the national pension, so there is a gap of G JPY. In order to get that, you need to start saving C JPY per month now”.

    That’s great and all, but what if you don’t really want to retire? What if the future market returns are different from the past? What if the returns do average what is expected, but your retirement just happens to start during a major recession?

    Don’t get me wrong – I think you should save and invest – I just don’t think you should have hard targets and dates in mind so much as a mentality to curb your lifestyle, create a margin to save and invest, and build your wealth. How and when you use it should remain flexible.

    The main issue I see is that once people realize and accept that investing in stock market index funds really is the most reproducible path to wealth in the long term, they say “Well, in that case, let me just invest 100% in stocks!”

    I’m not saying that this is never the right answer – in fact, that’s basically what I do – but it’s not for everyone. In fact, it’s probably not for most people. I know it’s okay for me because I have seen the market drop more than 30% multiple times and I haven’t lost any sleep over it. I have an emergency fund and s stable income from working, and realized both mathematically and emotionally that the stock market can and will flail around. I know that money is in the bouncy castle, and I am okay with that.

    Yet I have spoken with many people who just can’t help themselves. They check their 401k balance every week, and feel sick when it goes down 5%, much less 30%. They start imagining eating porridge every day during retirement, not being able to send their kids to college, etc. Then, of course, they think it was a scam all along and want to sell at the worst possible time. They thought they had an appetite for risk and wanted to go all in to maximize returns, but ended up selling at the bottom of the market – which is literally the worst thing to do.

    Those people made the mistake of not factoring in their emotions. If your emotions are going to make you want to sell at the bottom of the market, then the best strategy for you is not to invest 100% in stocks. There is no shame in holding more cash. For example, you might keep a portfolio of 45% cash, 5% gold, and 50% stocks. Will it grow more slowly than pure stocks? Without a doubt – but it will also grow faster over the long run than getting out of the stock market at the worst possible time.

    Even for the most confident of us, leaving room for error is important. There is no guarantee that the stock market will perform the same in the future as it has in the past. I truly believe that anyone who says “It’s different this time!” is flat out wrong – but hey, maybe it really is different this time.

    Even though robots didn’t take our jobs, and the internet didn’t do away with classrooms, even though 5G didn’t revolutionize the world… maybe AI, cryptocurrency, or some as-of-yet unseen force or technology will emerge and change everything forever. I doubt it, but you never know. If you couldn’t handle that happening, then maybe keep more cash, and save more in general.

    I don’t save what I would need for retirement, I save a lot more than that. Why? Well, money in the bank is flexibility. If I need to stop working due to an injury, or pay hospital bills for a sick family member, or … whatever. Projections on a spreadsheet are nice and logical, but the world is messy and unpredictable. You never know what is going to happen tomorrow, but you can control today.

    In my case, I am a risk taker in that I invest almost all my money into stocks, but I am also risk adverse in that I save a much larger percentage of my income than I have to. I would advise people to think long and hard about not only whether they have enough of a cash position, but also about whether they can shave a little bit off of their living expenses to save more.

    Saving need not have a specific purpose. Maybe my attitude will change and I’ll decide to retire early. Maybe I will lose my sight and be unable to work. Maybe a huge earthquake will topple my house. Maybe Russia will attach Japan next week. Nobody knows what might happen. For example, I knew about the 2008 Lehman shock about a year before it actually happened – but I didn’t know the exact timing when everything would come tumbling down, how bad it would be, or what other things would be affected.

    I know now that inflation has resumed in Japan after decades of deflation many people will be thinking “Save more?! Are you crazy?” – but I have known a lot of people who claimed they couldn’t save while spending money they clearly didn’t have to.

    I used to be in charge of enrollment at the DC fund where I worked, and I recall drinking with a coworker after work one day. He asked me “Do people really invest in that thing?” “Sure”, I told him, “but not everyone”. He insisted that he couldn’t spare even 5,000 yen per month, while he proceed to spend about that much at the bar with me. I suggested a relatively painless option “Look, when you get your nest raise, just start contributing the minimum of 3,000 yen per month, and then every time you get a raise after that, put half of the salary increase towards the fund – your take home pay will still increase, just not by as much”. Our company had a matching policy, so if he had put the 3,000 yen into the DC, the DC balance would have increased by 6,000 yen each month, while his take home pay would have decreased by something like 2,000 yen. Even if he just held it as cash in his DC, he would have gained over 4,000 yen per month. I doubt he would have even noticed that 2,000 yen loss in his take home pay, but he would have been accumulating he would have been saving 72,000 yen per year. Even just keeping that in cash, he would have accumulated 720,000 yen in 10 years even if he never increased the contribution. That’s not a huge amount, but it’s a whole lot better than nothing in return for a barely noticeable reduced increase in take home pay.

    A more recent anecdote involves a person I know who has a decent salary but basically every bit of their income is promised to something. They have a large house, basically the maximum they could afford with their dual income, they have multiple children, and two cars. They confided in me “Boy, I sure hope my bonus ends up being at least as large as last year’s bonus!” I mean, we all hope that, but i still asked “Why?” Their answer was “Well because I took the kids to Disney Land and we stayed at the hotel there… it cost a lot of money” – so not only are they spending future income now by buying houses and cars on loan, but they are spending their bonus money on vacations as well. I explained my strategy as follows “Well, I assume I will get no bonus. That way, if it turns out to be zero this year, I am not going to struggle. If it turns out to be 1 man, I am happy is wasn’t zero. If it turns out to be the same as last year, then I am pleasantly surprised”. They looked at me like I was a crazy person, so I said “Okay, for budgeting purposes I assume it will be 60% of last year’s bonus – but I also assume that 90% of that will go towards savings”. Realistically, the risk they were running was that if the economy is bad, then company performance may be bad, and then the bonus will be smaller than expected. Since the money has already been spent, they will have for put things like groceries on the credit card in order to make their mortgage and car loan payments.

    While I am aware that some large traditional Japanese companies have bonus payments that are more or less predetermined, the fact that Japanese credit cards have a “bonus” repayment option is to me an atrocity. Sometimes even these large companies run into financial difficulties and need to cut bonus amounts. Spending your salary (or bonus) before you get it is the opposite of having a margin of error. It’s not my place to tell other people how they should handle their finances, but I I can speak to what I would do in a similar situation, so said “If I was planning to take the family to Disney Land nest year, I would start saving now, and build my own ‘bonus’. If your real bonus comes, you can use it for following year’s trip”.

    What’s my point? You can probably suffer a lot more loss in short term income than you think, and savings add up quickly. With DC, iDeco, and NISA, Japan now has the tools to really help you save and invest in tax smart ways. You just need to be willing to take a small hit now to build a safety net. If you can’t bear a loss of 5,000 yen per month then how on earth are you going to handle a sudden job loss or other disaster? We all need to expect the unexpected and build a margin for error into our life.

  • Bank of Japan making a killing on Japanese Stocks?

    There have been multiple articles in the newspapers and segments on the news lately about how the Bank of Japan (Nichigin) has been making a tidy profit on the Japanese stock marker.

    BoJ has been buying Japanese stocks for some time for various reasons, so it’s no surprise that they own a lot of domestic stocks. It also shouldn’t be surprising that they make a profit doing this, if these stocks are making a profit overall – but the profit that BoJ has been making is larger than would be expected.

    Why? It’s simple, they have a daily budget which they spend each day to buy stocks – but on days where the market has dropped a significant amount in the morning, they raise their daily budget for buying stocks and buy more than average in the afternoon. In other words, they buy more stocks when stocks are on sale. This lowers their average purchase price.

    If you and BoJ own the same stocks, but they bought them for less, then obviously they will have earned more of a profit than you.

    The question is: What can you learn from this as an individual investor?

    Well, on average, getting into the market earlier is still a better strategy than waiting for prices to drop – but if you have a normal budget you invest per month, and you are also able to lower your disposable income in order to invest more in certain months, then perhaps you too can employ a similar strategy.

    As an example, say you have a take-home pay of 40 man Yen per month, and you normally invest 10 man Yen. You technically could live on a tighter budget and invest 15 man yen. Financially speaking, you should invest 15 man yen every month then – but you don’t want to be that austere all of the time. One thing you could do is invest 15 man yen whenever the market is at least 10% lower than it was at the start of last month, and 10 man yen the rest of the time.

    Implementing a daily system like BoJ would be more complex, time consuming, and depending on your fees, not worth the effort. Depending on your situation, you might define your cash to stock ratio as a range, say “I want to be 20-30% in cash”, and start the month with 10 man in cash. That means that using the 30% number, you plan to invest 7 man in stocks over the course of the month. Every day, you invest 2,333 JPY. On days where the market went down in the morning, you invest 2,666 JPY instead. Again, emulating the bank’s approach assumes free real time trades are possible.

    Doing this with individual stocks would be incredibly dangerous since it may well mean your are pouring money into companies sliding towards bankruptcy – but doing it with the market in general isn’t a bad approach.

    The more important takeaway, however is probably that there is no need to run when market drops. If you feel the need to sell, then your cash position wasn’t large enough in the first place, so rather than selling, you should start saving more in cash each month until you are in a position where the market dropping 50% overnight wouldn’t bother you that much. Stocks might offer the highest return, but being able to sleep at night is important as well, and panic selling can erase any gains you might have had. The best asset allocation is the one that keeps you in the market and lets you sleep at night.