Is the Japanese economy on the turn? If so, could this be the right time to think of investing in the Japanese stock market? Jeffrey Strain looks at ways to do it.



The "Big Bang" economic reforms you' been reading so much about may have finally trickled their way down to where you may actually be able to take advantage of some of them; that is unless you are a US citizen. Banks, credit unions, life and non life insurance companies are now allowed to sell investment trusts the Japanese equivalent of US mutual funds giving Japanese citizens a more convenient outlet to receive information about these investments.

An investment trust is a group of stocks or bonds put together by a portfolio manager. The stocks or bonds are usually designated to be a certain type, depending on the investment trust. For example, they could be as broad as a "European stock investment trust" and as specific as a "Japan small company investment trust." The investment trust manager decides into which stocks or bonds to place the pooled money of all the investors in that investment trust. Gains made from the investments are distributed to the investment trust's members, but the members also take the risk that their assets may decline since their deposits are not guaranteed.

The question for foreigners living in Japan has always been how they could buy into these investment trusts or into the Japanese stock market directly? The answer is that it is possible to do so from Merrill Lynch Japan if you meet three requirements: 1) You possess a valid alien registration card 2) You are not a US taxpayer 3) You know enough Japanese in order to be able to understand the literature provided, to fill out the necessary forms and to be able to communicate with the Financial Consultant.

Merrill Lynch would love to sell investment trusts to US citizens, but the US Internal Revenue Service (IRS) doesn't look too highly on the idea. The IRS is concerned that US citizens, if allowed, would take their money out of their mutual funds in the US and invest all their money into investment trusts in Japan. The IRS views this as unwanted because then the IRS would have no idea how much money US citizens have gained through these investments since the Japanese investment trusts don't have to report monetary gains to the IRS, whereas the US mutual funds do. Basically, the IRS is afraid that US citizens will buy Japanese investment trusts to avoid paying taxes on their investment gains.

For those who are not US citizens, or who have a Japanese spouse, there are a number of investment trusts available. At this time, Merrill Lynch Japan only has literature pertaining to their trusts written in Japanese. They include a Japanese large company stock investment trust and a Japanese small company investment trust, as well as a number of international investment trusts. Both the small and large company investment trusts have a ´10,000 initial investment minimum. The yearly management fee is a hefty 3% for deposits under ´10,000,000, but decreases to 1.5% if you happen to have ´100,000,000 sitting around in your bank.

For those wishing to buy stocks directly, this is possible if you meet Merrill Lynch's three previously mentioned requirements. The most discouraging factor with buying stocks directly is a rather large initial outlay of funds necessary to buy a stock. In Japan, you can not buy a single share of a stock, but must purchase most of them in bundles of one thousand shares, with a few higher priced shares selling in bundles of one hundred shares. That means a company's share which is listed for ´900 in the newspaper will actually cost you ´900,000 if you want to buy the 1,000 share minimum to directly own a part of the company.

For general information in English, you can contact Merrill Lynch toll free at 0120-437144. If you have specific questions regarding one of Merrill Lynch's investment trusts the best person in Japan to speak to in English is Financial Consultant Keisuke Nishiuchi at the Kyoto Shijo branch at 075-241-5719, fax 075-255-1817.

Reproduced with permission of Kansai Time Out.