A monitor shows the closing price of the Nikkei Stock Average on the afternoon of January 22. (©Kyodo)
On December 28, as I was reading the morning edition of The Nikkei, something interesting caught my eye. A 1/3 page advertisement on the last page of the newspaper read, "Blackstone, a new alternative to supplement asset building." In addition to this corporate slogan, the advertisement featured the question, "What is alternative investment?"
Blackstone Group is one of the world's leading investment firms. The company's total assets under management (AUM) amount to $1 trillion USD (approximately ¥148 trillion JPY). American billionaire Stephen Schwarzman is chairman and CEO of the New York-based company. As far as I can remember, this is the first ad the company has placed in a Japanese newspaper.
Such advertisements are more typical of JP Morgan Chase (chaired by Jamie Dimon and headquartered in New York). With total assets of $3.9 trillion USD (approximately ¥577 trillion JPY), JP Morgan is the largest American bank. Since 2022, the firm has published several ads in The Nikkei.
Surging Stocks
Japan's surge in stock prices at the beginning of 2023 shows no signs of slowing down. On January 19, the Nikkei Stock Average closed at ¥35,963 JPY ($245.23 USD) on the Tokyo Stock Exchange (TSE), up ¥497 JPY ($3.39 USD) from the previous day. Daily new highs on the market are sending Tokyo financial hub Kabutocho into a frenzy.
Japanese stocks accumulated ¥6.3 trillion JPY (about $43 billion USD) worth of foreign inflows in 2023. That is according to TSE Japanese stock investment data by investor type. These considerable foreign investments drove Japan's market performance in 2023.
Meanwhile, individuals, investment trusts, and financial institutions were oversold at ¥3.2 trillion JPY ($21.8 billion USD), ¥1.6 trillion JPY $10.9 billion USD), and ¥6.8 trillion JPY ($46.4 billion USD), respectively. Foreign investors account for 70% of trading volume. They also hold the highest percentage of stocks at 30%. That makes their presence significant in influencing stock prices.
Japan's household financial assets amount to about ¥2,100 trillion JPY ($14.3 billion USD). Of that, cash and deposits account for half (¥1,100 trillion JPY). If even 1% of this went to equity investments, the inflow would amount to ¥11 trillion JPY ($75 billion USD). This would be approximately double the amount of foreign investment in 2023.
Kishida's Vision
Blackstone and JP Morgan are not the only firms interested in the Japanese market. BlackRock has also become keenly aware of the potential of Japanese individual investors. It is the world's largest asset manager with $10 trillion USD in AUM (approximately ¥1,480 trillion JPY). Larry Fink is CEO and chairman of the New York-based investment company.
Repeated calls to move from savings to investment have fallen on deaf ears. However, the "Asset Management Nation" envisioned by the Fumio Kishida administration in November 2022 has been blessed with good luck.
This stroke of luck presented itself in the form of inflation.
In a deflationary environment, it makes sense for households to hoard their cash. However, sustained 2% inflation will inevitably diminish cash value (by 20% over ten years). It will also increase the likelihood that households will attempt some financial investment.
This will attract the interest of foreign investors as well as lead to foreign asset management firms approaching Japan. Can this development change the fortunes of the Kishida administration?
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(Read the article in Japanese.)
Author: Takao Toshikawa
