The stock market in Japan is regarded as one of the largest markets in the world, accounting for over 20% of all Asian capital markets. The Nikkei 225, representing companies throughout Japan, has been an essential index since 1950 and is still used today to measure the general performance of the Japanese economy.
Before trading stocks in Japan, it is essential to understand certain vital fundamentals.
A brief history
The first critical understanding is the history of the Japanese economy and how it has become one of the most affluent economies in the world.
Second, you need to know about the financial reforms that affected Japan’s overall economic standing. Only then can you have a crystal clear picture of what kind of market awaits your trading activities.
History will tell you that Japan was not doing well at all during the two decades after World War II, especially economically speaking.
At that time, it was suffering from inflation and slow growth rates, which meant low living standards for most people there.
To improve their economy, they introduced specific policies collectively called the Miracle on the Pacific.
The policies included making potential export markets easily accessible, investment incentives to lure foreign businesses to invest in Japan and providing better protection for intellectual properties, which led to a phenomenal growth rate of their economy.
The third important thing you need to be aware of is the introduction of financial reforms after the 1990s. Japan was hit hard by two major economic downturns in 25 years-one during 1991-92 and another during 1995-97, following the Asian Crisis that affected much of Asia, including South Korea, Malaysia, the Philippines etc.
At that time, Japanese share prices tumbled. Still, they recovered quickly because the government came up with practical measures like injecting money into various financial institutions that had become bankrupt (it was the creation of zombies) after they went under.
Lastly, you need to know why Japan has become the third-largest economy globally. It has something to do with their financial reforms, which led them to have one of the strongest currencies in 2010, making it possible for Japanese people to buy more goods.
Also, Japanese international trade gained so much momentum that by 2011, Japanese exports were growing even faster than China’s trading activities.
On top of that, there were two decades of deflationary pressures on asset prices, which caused high savings rates and stable property values. It made Japan an attractive place for overseas investors who ploughed money into various international stocks being traded there.
Indices
There are three leading indices that most people use to gauge how well a particular stock or index will do during a given day – these are called “Fundamental Indicators” or simply “fundamentals.”
These indicators encompass everything from earnings per share ratios to economic factors such as GDP – investors use them to predict whether stocks will go up or down with relation to each other based on their trends, values, etc.
When trading shares in the Japanese market, the following are some of the factors that you should consider using as a reference:
Time is Money
Like elsewhere, time is of the essence when trading stocks. The Tokyo Stock Exchange conducts business around the clock. It closes at 19:00 on weekdays and 5:30 PM on Saturdays for domestic trading purposes but opens again during the next day for foreign transactions.
Tax Considerations
Depending on your country of residence or citizenship level (i.e. tax treaty). You may be exempt from paying taxes on a dividend or a capital gain made from selling a stock – but check with a tax professional before making this decision as there are many factors at play for us to explain here.
Join an online community
The internet is an excellent tool for gathering knowledge, so find some good forums or chat rooms where people share their insight on different stock markets to get the most comprehensive picture possible. Be careful though, not all advice you receive will be sound.
Even if it is, there’s no guarantee that it’ll work for you since everyone has a different risk tolerance level, which depends on their available funds.
In Conclusion
Stock trading in Japan is not for everyone and requires plenty of research before entering the market.
If you feel that this investing suits your financial goals, then act upon it by finding suitable reference materials on how to trade stocks online or even making friends with people who already do it!
Only if you put in the effort will you reap the rewards. Link to Saxo for more information.
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