By Theo Wyld, portfolio manager on the Chikara Japan Income & Growth fund and the CC Japan Income & Growth Trust
Japan’s equity market is finding a new source of support at home. With sustained inflation making cash less attractive, more households are turning to the nation’s ISA equivalent, the NISA, to invest for the long term.
At the same time, policymakers are increasingly encouraging pension funds and individuals to back Japanese financial assets, helping ensure more of this new investment capital stays at home.
If even a small portion of Japan’s vast household cash pile, which currently stands at around $7trn, continues to move towards domestic stocks, it should provide meaningful support for equity markets.
Going cold on cash
For decades, there was little reason for Japanese households to take equity risk.
In a deflationary economy, cash felt safe and was a rational choice for many. Prices were stable or falling, deposits preserved purchasing power, and many households saw the stock market as something more likely to lose money than create wealth.
But that mindset appears to be changing. Japan’s sustained move into inflation has made the opportunity cost of holding cash clearer. Cash now visibly loses value, and households have felt this through rising food and energy prices.
Added to this interest rates on deposits remained negligible even after the Bank of Japan ended negative rates in 2024 and began gradually raising them. The gap between deposit returns and inflation, in other words negative real rates, pushed savers to look elsewhere.
Japanese equities have risen substantially over the long term since 2009, despite several periods of significant market volatility. The chart below shows that Japanese investors today have now seen stock markets rise over their lifetimes. This could not be said for many decades, with the Nikkei 225 having fallen more than 80% from its peak in 1989 to the trough in 2009. (See chart below)
NISAs: A gateway to investing
The clearest evidence of this shift is the growth in NISA account openings.
While first introduced in 2014, the programme was overhauled in 2024 with higher investment limits and stronger incentives for long-term investing.
That reform marked an inflection point.
By the end of 2025, NISA accounts had reached around 28 million, while assets in the programme had grown from ¥35trn in 2023 to ¥71trn in 2025.
Participation is also broadening demographically, with younger savers becoming an increasingly formidable force.
Demographic and fiscal anxiety should not be overlooked. With an ageing population and one of the world’s highest debt-to-GDP ratios, younger Japanese are increasingly sceptical that the public pension system will provide adequately for their retirement.
The 2019 Financial Services Agency (FSA) report suggesting retirees would need ¥20m in savings beyond their pension caused a public outcry, but it also planted the idea that self-directed investing is a necessity, not a luxury. In our view, the report by the FSA served as a deliberate wake-up call, encouraging households to think more seriously about their retirement provision and the potential role of investment alongside cash savings.
Indeed, investors in their 40s or younger accounted for around 49% of total NISA purchases as of the end of June 2025. And Nikkei has also reported on the rise of so-called “NISA poverty”, where younger people cut back on everyday spending to prioritise contributions to their tax-free investment accounts.
That won’t necessarily help the consumer economy. But it shows how far attitudes have moved: the fear is no longer losing money in equities, it’s not investing enough.
Domestic stock boost
Crucially, this shift is feeding into demand for Japanese stocks.
A QUICK survey released in April found that individual Japanese stocks were the most favoured category in the Growth investment quota of the new NISA, with 56% of users holding them. Across overall financial assets, Japanese stock holdings reached 27.5%, the highest level since the survey began in 2018.
It also helps that many new investors have had a positive first investing experience. The same survey found that 87.2% of new NISA users had seen investment gains, while 73.9% had achieved gains of 10% or more.
A generation of savers that grew up wary of equities following decades of weak market performance are now seeing that investing can build wealth over time.
There are risks, and many new investors have not yet experienced a prolonged bear market. But in a country long associated with cash savings, domestic stock ownership is becoming normalised.
Recently, the Japanese government has also started to lean into this attitude shift.
Just this month, PM Sanae Takaichi advocated for measures to encourage households and the ¥293.6trn Government Pension Investment fund to invest further in Japanese financial assets.
There’s no guarantee of a major allocation change yet. But the signal still matters: policymakers want more domestic capital participating in Japan’s own growth.
A structural tailwind
The implication is simple.
Alongside foreign interest, corporate governance reform, and improving shareholder returns, the nation’s equity market is increasingly being supported by domestic capital.
Not all of Japan’s household cash will move into equities. But it doesn’t need to, the pool is so large that even a gradual shift towards domestic stocks could create meaningful long-term flows.
The direction of travel is clear. Inflation, NISA reform, positive investment experiences and supportive policy are all pushing more domestic capital towards the market. In our view, this could provide a powerful, long-term tailwind for Japanese equities.
