The Japanese stock market is one of the most dynamic in the world. At any given time, there are usually several different trends playing out simultaneously, and this constant state of flux makes for an extremely exciting market to follow. The Japanese stock market also has a reputation for being quite difficult for outsiders to understand, which has led many investors to believe it’s a very complicated place to invest. However, that’s not necessarily true. While the Japanese stock market does have its fair share of intricacies that you won’t find in any other major stock market, it isn’t all that difficult once you get past the initial learning curve and begin viewing things from a strategic standpoint instead of focusing on just one aspect at a time. If you want to start investing in the Japanese stock market as soon as possible, this guide will lay out everything you need to know about the sector so you can make informed decisions when choosing which stocks to buy and sell.
What’s the difference between the Tokyo Stock Exchange and the Nikkei?
The Tokyo Stock Exchange is the actual physical exchange you will visit if you decide to trade stocks in person. The Nikkei is an index that measures the performance of the entire Japanese stock market by tracking the daily price movements of a number of the largest and most widely-owned companies in the country. Given the massive size of the Japanese stock market, one exchange can’t track the performance of every single company. So instead, the Nikkei tracks just a few dozen of the largest stocks to create a general overview of the entire market’s direction. This also helps make the Nikkei extremely easy to read and understand, as all you need to do is glance at its current value to get a general sense of how the overall Japanese stock market is doing that day.
The Basics of Japanese Stocks
Japanese stocks are bought and sold in units called “shares”, which represent a portion of ownership in a company. The number of shares you own is the primary factor in determining your total profit or loss when you sell them for profit at a later date. Most Japanese stocks are listed on the Tokyo Stock Exchange, with a few smaller companies listed on regional exchanges across the country. As with most other major stock markets in the world, you will find two main types of stocks in Japan: NANDAN stocks and GENDA stocks. These can be further broken down into a few subtypes, but the main difference between them is the amount of information they are required to disclose to investors.
Trading in Japan
Trading in Japan is done exclusively over the internet, and you can trade stocks in Japanese yen or US dollars. The main difference between trading in Japanese yen or US dollars is the exchange rate used to convert your funds into yen. Most Japanese online brokers will allow you to trade in both currencies, and the vast majority of them will offer you a choice of either a “normal” account or a “margin” account. The main difference between these two account types is how much money you need to deposit to get started trading. Normal accounts require you to deposit at least 50,000 yen, while margin accounts only require an initial deposit of 10,000 yen.
Finding a Broker to Trade in Japan
One of the first things you need to do before you start trading in Japan is to find a good broker. A broker is the company you use to buy and sell stocks (more on that below) and finding the right one is crucial to your long-term success as an investor. While there are several reputable and trustworthy brokers in Japan, not all of them are a good fit for every investor. As such, the first thing you should do when researching brokers has defined your investment goals and create a list of must-have features and tools that you need to make your trading experience easier. From there, you can use this list to more easily identify which brokers are a good fit for you and which aren’t.
The Different Types of Stocks in Japan
When viewing stocks on the Tokyo Stock Exchange, you will notice there are 6 categories: NENDAN stocks, GENDAN stocks, KK stocks, SHOShinKan stocks, KABUSHIKI KAISHA stocks, and HONKAN stocks. Understanding the differences between each type of stock is crucial to successful investing in Japan. First off, all of these stocks are traded on the TSE and have their ticker symbol. The NENDAN stocks are the largest and most well-known companies in Japan, and they include companies like Toyota, Nissan, Hitachi, and Toshiba. The GENDAN stocks are medium-sized companies in Japan, and they include names like Panasonic, Sony, Fujitsu, and Panasonic. The KK stocks are the smallest companies in Japan, and they include names like Daiwa Securities, Mizuho Securities, and Daiwa Institute of Research. The SHOShinKAN stocks are the commodities companies in Japan, and they include names like Idemitsu Oil, Japan Oil, Nippon Mining, and Idemitsu. The KABUSHIKI KAISHA stocks are the financial companies in Japan, and they include names like Mitsubishi Financial, The Bank of Tokyo-Mitsubishi UFJ, and Sumitomo Mitsui Financial. The HONKAN stocks are utility companies in Japan, and they include names like Tokyo Gas, Tohoku Electric Power, and Chubu Electric Power.
NENDAN Stocks
NENDAN stocks are companies whose stocks are deemed to be “fully paid”. This means that their stocks are currently trading at or above their book value, and the dividends paid out to shareholders are fully covered by their earnings. Because these companies are currently trading at or above their book value, they are considered the safest and most stable stocks in Japan. These are the stocks you ideally want to buy and hold for the long haul, as they will likely experience the least volatility and see the largest capital gains over time as their underlying valuations increase.
GENDAN Stocks
GENDAN stocks are companies whose stocks are trading below their book value. This means they are considered to be “impaired”, and their stocks are either undergoing restructuring or are expected to do so shortly. These companies are considered riskier than NENDAN stocks, but they also offer much larger short-term gains due to their below-book value valuations. You shouldn’t buy and hold GENDAN stocks for the long haul, as their valuations are expected to increase and turn them into NENDAN stocks over time. Instead, you should only buy GENDAN stocks if you plan to profit from their short-term price swings.
KK Stocks
KK stocks are the smallest and riskiest stocks in the Japanese stock market. They are the stocks that have fallen the furthest below their book value, and they usually consist of ongoing research and development projects, new or experimental technologies, or companies that are in extremely early stages of their operational lifecycles. KK stocks are the most volatile and unpredictable stocks in the Japanese stock market, and they are very difficult to trade successfully. However, if you do decide to buy and sell KK stocks, you should only do so with a very small portion of your overall investment portfolio, as the risk of losing most or all of your money is extremely high.
SHOShinKAN Stocks
SHOShinKAN stocks are the commodities companies in the Japanese stock market. They trade primarily in crude oil, natural gas, gold, and silver, but some of them also trade in copper, tin, and other types of minerals. SHOShinKAN stocks are very volatile, and their prices are extremely sensitive to changes in the supply and demand of the commodities they trade-in. This makes them extremely risky stocks to trade, but they also have the potential to generate extremely large profits if you can buy and sell them at the right time. SHOShinKAN stocks are also extremely difficult to trade successfully, so you should only buy and sell them with a very small portion of your overall investment portfolio.
Index investing - Investment Strategies
Investing in Growth Stocks Might be the Way to Go
Is USD/CHF a Major Pair?
A Guide to the UK Stock Market