Interested in buying foreign stocks, and Japanese stocks in particular? There are several different approaches you can take to buy Japanese stock. Read on so you’ll know exactly how to make it happen.
Quick Look: How to Buy Japanese Stocks
- Select a broker that allows you to invest in the foreign market. We explore a few of our favorites below.
- Choose how you will invest. Are you looking at mutual funds, ETFs, individual stocks, or another way to invest in the Japanese market?
- Practice. If your broker has a demo account, practice investing in the Japanese market. Take some time to adjust to the volatility before using your hard earned money.
- Fund your account and begin trading. Once you feel confident with your broker, you can put money into your account a purchase shares of the company you want.
Overview: Buying Japanese Stocks
Japan’s principal stock exchange is the Tokyo Stock Exchange (TSE). The TSE was founded in 1878 and is currently the world’s third largest stock market by market capitalization, approximately $5.37 trillion as of June 2019.
The TSE combined with 10 other Japanese stock exchanges in 1943 to become the Japanese Stock Exchange, which was closed and restructured after the end of World War II. The Tokyo Stock Exchange officially reopened in May 1949.
During the 1980s, the Japanese stock market dominated other world stock markets and rose notably for 9 years. At one point, it even accounted for as much as 60% of the global stock market capitalization. This almost exponential rally in the Japanese stock market was known as the Japanese asset price bubble.
The Nikkei 225 Index, the main Japanese stock index, traded at 92.50 after the exchange reopened in 1950. By 1980, the index had reached 6,649.50 and on December 29, 1989, at the top of the Japanese asset price bubble, it closed at 38,915.87, which remains the index’s all-time high.
The index then fell precipitously from its high point. It has since traded under 8,000 twice, first in 2003 and then in 2009. The Nikkei 225 index has recovered substantially since the latest dip in 2009 and currently trades at 21,746.38.
The TSE merged with the Osaka Stock Exchange in 2012, which resulted in the creation of the Japan Exchange Group (JPX). The JPX currently has 4,004 listings and is a
American depositary receipts (ADRs) of JPX trade on the U.S. OTC Markets Group platform (OTCMKTS) under the symbol JPXGY. They can be traded through any U.S. broker with access to OTC Markets’ OTCQX and OTCQB, where many foreign stocks’ ADRs can be traded.
According to Japan’s Financial Instruments Trading Act, Japanese stock exchanges must self-regulate. Japan Exchange Regulation (JPX-R) regulates both the TSE and the Osaka Stock Exchange.
Trading hours for the TSE in Japan Standard Time (JST), which is GMT +9, start at 9 a.m. and continue until 11:30 a.m. Trading starts up again at 12:30 p.m. after a break for lunch and goes until 3 p.m. The exchange is open from Monday through Friday, with the exception of bank holidays.
You can choose from among several different methods for buying Japanese stocks. They are outlined in the steps for buying Japanese stocks listed below.
Step 1: Pick a Broker
Knowing how to trade is just as important as choosing the right broker. For example, if you have limited experience in the stock market, you would probably need a broker with educational resources and an easy-to-use trading platform.
You’ll need to open the right type of account with a broker that has access to trading Japanese stocks, either on the TSE or domestically.
You have several choices, including the use of commission-free brokerages. Your choices for a brokerage would be an international broker, a regular brokerage account or a trading account with a Japanese broker.
The most versatile broker choice, especially for traders based outside of Japan, involves opening an account with a reputable international broker. One of the best international brokers for traders based in the United States and all nations except those prohibited by the U.S. Office of Foreign Assets Control (OFAC) is Interactive Brokers.
Regular Brokerage Account
Would you like to buy Japanese stocks in a regular online brokerage account? You can buy Japanese companies listed on major stock exchanges through Japanese stock ADRs. These are traded actively on the NYSE, NASDAQ and OTCQX exchanges.
Japanese Stock Broker
This option would probably best suit either a domestic Japanese investor or a foreigner familiar with the Japanese language. In either case, it’s a good idea to understand the Japanese financial world and have a sense of the tax implications involved in trading Japanese stocks.
In most cases, opening an account with a Japanese broker would probably only make sense if you live in Japan.
|Broker||Best For||Commissions||Account Minimum||Choose your platform|
||$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available||$0 for cash account, or a margin account with $2,000||
Get started securely through Interactive Brokers’s website
1 Minute Review
If you consider yourself a sure-footed professional trader, Interactive Brokers might be a major possibility for you, particularly if you’re adept at navigating tricky trading platforms (can you say 124 option indicators?) or have done more than just dipped your toe a “coupla times” into the complex world of international markets.
Lower minimum activity requirements ($3/month) and opening account minimum requirement ($3,000) for clients 25 and younger.
||$6.95 for fewer than 30 trades/quarter.||$0||
Get started securely through eTrade’s website
1 Minute Review
E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.
60 days of commission-free trades with deposit of $10,000 or more
||$4.95 volume discount available||$0||
Get started securely through Ally Investment’s website
1 Minute Review
If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.
$3.95 per stock trade for Active Traders at Ally Invest
Step 2: Choose Your Investment Vehicle
Once you’ve opened your trading account, you can buy stocks directly on the different Japanese stock exchanges through your international or Japanese brokerage account. Or, you can buy ADRs on Japanese stocks in your regular or commission-free brokerage account. Many brokers also offer commission-free and no-load mutual funds based on Japanese stocks.
When you buy an ADR, you basically buy a receipt on one stock. In contrast, mutual funds and ETFs are diversified investments based on a pool of stocks that could all be in a particular sector, in an index or of a particular size, such as small-cap stocks, for example.
Mutual funds are generally run by top money managers and since they are generally already diversified, they make a great alternative to buying individual Japanese stocks via ADRs.
Share prices for Japanese mutual funds range from $3.91 for Commonwealth Japan (CNJFX) to $36.34 for Hennessy Japan Institutional (HJPIX). Yields on Japanese-based mutual funds range from a year to date (YTD) loss of -5.59% (Voya Japan TOPIX Index Port I: IJIAX) to gains of +15.80% (Fidelity Advisor Japan I: FJPIX).
Other top Japanese mutual funds include:
- Matthews Japan Investor (MIJFX) and Institutional (MIJFX)
- T. Rowe Price Japan (PRJPX)
- Fidelity Japan (FJPTX)
- AIG Japan (SAJCX) and Hennessy Japan Investor
- Small Cap Investor (HJPNX) and (HJPSX).
Just ask for more information from the broker of your choice if you’re interested in Japanese mutual funds.
Given the threat to the current global trade environment from the spread of protectionism led by the United States, Japanese ETFs could be a good investment over the long term.
Some of the more promising ETFs available include:
- Direxion Daily Japan Bull 3X ETF (JPNL): This ETF aims to produce daily results equal to 300% of the daily MSCI Japan Index.
- iShares MSCI Japan ETF (EWJ): This ETF tracks investment results of the MSCI Japan Index that is composed of large and mid-cap stocks listed on the TSE.
- WisdomTree Japan Hedged Equity Fund (DXJ): Tracks the performance of the WisdomTree Japan Hedged Equity Index. This index provides an investment in Japanese stocks protected against adverse fluctuations in the Japanese yen.
Step 3: Practice Trading
Do you plan on trading in an international or regular brokerage account? Your broker will more than likely offer a demo or virtual account to let you assess their platform and practice trading. If you plan on trading ADRs on Sony, Sumitomo or Mitsubishi, then you can practice trading those assets in either type of broker account.
Have a trading plan while you practice so you’ll have a plan when you begin trading in your funded account. Access to trading mutual funds and ETFs may not be available in some demo accounts but do your research before committing any funds to either form of investment.
Step 4: Buy Your Shares
Now that you’ve practiced, you’re ready to make your first purchase of Japanese ADRs or the shares of a mutual fund or ETF.
Keep in mind that trading in Japanese stocks carries foreign exchange risk, which can be substantial if you live outside Japan.
Unless you purchase shares in a fund like Wisdom Tree, which hedges its foreign exchange risk, your investment in ADRs, mutual funds or ETFs could be adversely or positively affected by fluctuations in the value of the Japanese yen relative to your home currency.
Make sure you’ve watched the asset you plan to buy so you can place your order strategically. This typically means using technical analysis to determine a good level to buy ahead of support points shown on a stock’s price chart.
Finally, Buy the Japanese Stock
Unless you live in Japan and speak Japanese, using a Japanese broker to buy stocks listed on Japanese exchanges would probably not be your first choice.
If you live outside of Japan, your best bet for participating in the Japanese stock market would most likely be through the use of ADRs, Japanese stock-based ETFs and mutual funds.