Is the Japanese government encouraging citizens to invest their savings, and can this policy succeed?

Okay, let's talk about this fascinating topic. The Japanese government's recent move is indeed an attempt to "lure" people's money out of banks and into the stock market. Whether this will work isn't a simple yes or no; we need to look at it from several angles.

First, what exactly is the government doing? – What is the "New NISA"?

The core policy behind the "encouraging public investment" you mentioned is something called the "New NISA".

Think of it as a "tax-free investment super package".

• NISA (Nippon Individual Savings Account): This was originally a Japanese individual savings account. Investments (like stocks and funds) bought within this account generated tax-free returns up to a certain limit (Japan's capital gains tax is around 20%, not insignificant).
• What's "New"?: Starting in 2024, this NISA account got a major upgrade.
  1. Massively Increased Limits: The annual tax-free investment allowance was significantly raised to 3.6 million yen (approx. ¥1.7 million RMB).
  2. Lifetime Tax-Free Allowance: A total lifetime tax-free allowance of 18 million yen (approx. ¥850,000 RMB) was introduced. Crucially, this allowance is reusable – when you sell investments, the used allowance becomes available again.
  3. Permanent System: The old NISA had an expiration date; this new system is permanent.

In short, the government is offering an unprecedented, super-favorable policy, essentially saying: "Come on, invest using this account. Keep most of your profits; I'll give you a tax green light!" The scale of this incentive is historic.

Why is the government doing this? – Awakening the "Sleeping Giant"

Over half of Japanese household financial assets are held in cash and deposits, totaling more than 1,100 trillion yen! That's an astronomical figure. This money sits idly in banks, earning almost zero interest.

This creates several problems:

• Money Isn't "Working": Money sitting in banks does little to stimulate the overall economy.
• Businesses Lack Capital for Growth: If money flows into the stock market, businesses can raise capital more easily to fund R&D, expand factories, and raise employee wages.
• The Threat of Inflation: Japan previously experienced deflation, making cash in the bank relatively stable. Now, with global inflation and Japan also seeing rising prices, money in the bank is effectively slowly "evaporating" and losing value.

Therefore, the government's goal is clear: Awaken this "sleeping" money, channel it into the investment market, and create a virtuous cycle: "Personal wealth growth → Business development → Economic recovery → Wage increases → More personal wealth to invest."

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Will this policy succeed? Let's look at both sides

This is a trillion-yen question with a complex answer. We can examine it from both "Optimistic" and "Challenging" perspectives.

The Optimistic Side (Why it might succeed)

1. Significant Policy Incentives: The "New NISA" offers substantial, tangible benefits that are very attractive to ordinary people. Who wouldn't want to invest and keep their profits tax-free?
2. Inflation Shifting Mindsets: As mentioned, rising inflation is actively challenging Japan's decades-long "cash is king" mentality. The idea that "money in the bank equals losing money" is spreading among the Japanese public. This is the most fundamental driving force.
3. Strong Stock Market Performance: The Nikkei index recently hit an all-time high, demonstrating clear profit potential. Seeing neighbors or colleagues making money through investments is hard to resist. This "FOMO" (Fear of Missing Out) sentiment is contagious.
4. Corporate Reforms: The Tokyo Stock Exchange is pushing listed companies to reform, demanding they prioritize shareholder returns through measures like increased dividends and stock buybacks. This means the "value proposition" of investing in Japanese companies is improving.

Significant Challenges (Why it might not be so easy)

1. Deep-Rooted Savings Culture: Japanese people, especially the older generation, are extremely risk-averse. They lived through the bursting of the bubble economy in the early 1990s, where many lost their life savings in the stock market, leaving deep psychological scars. Convincing them to invest their retirement money in stocks requires immense courage. This "safety first" cultural inertia is very powerful.
2. Lack of Financial Literacy: Many ordinary people simply don't know how to invest. Faced with a bewildering array of stocks and funds, they feel fear and confusion. If they lose money right away, they might never touch investments again.
3. Aging Population: Japan has one of the world's most rapidly aging populations. Older people are typically risk-averse; they need stable cash flow, not high-risk/high-return stocks. While younger people are more willing to invest, they generally have less savings.
4. Economic Fundamentals are Key: Policy is just a catalyst. Ultimately, the stock market depends on whether companies can generate sustainable profits and whether the entire Japanese economy can truly emerge from its "three lost decades." If corporate profits don't keep up and wages don't rise, this bull market could be short-lived, ultimately "trapping" new investors. That would mean the policy has failed.

My View: Short-Term Success Visible, Long-Term Depends on Culture

So, back to your question: Will this policy succeed?

My view is: It has achieved initial success in the short term, but whether it can fundamentally transform Japan's savings culture in the long run remains uncertain, with many variables.

• Short-Term Success: Data shows that since the start of 2024, the number of people opening NISA accounts and the inflow of funds have surged significantly, boosting the Japanese stock market. It's fair to say the policy's "ignition" effect has been achieved.
• Long-Term Challenge: This is more like a profound shift in social attitudes. It's not just about moving money from bank accounts to stock accounts; it's about transforming a nation accustomed to decades of safe savings into one that embraces risk and becomes comfortable with investing.

Here's an analogy:

It's as if the government is using a powerful pump (the New NISA) to start drawing water from a long-dormant river, hoping to get the entire river flowing again (the economic cycle). The pump is now running, and ripples are appearing on the surface (the stock market rise). But to revitalize the entire river, the downstream riverbed (corporate profitability) needs to be deep enough, and there needs to be consistent rainfall (wage growth). Relying solely on the pump to force the flow is unsustainable.

In conclusion, the Japanese government's direction is correct, but the road ahead is long. This will undoubtedly be a fascinating angle from which to observe the Japanese economy in the coming years.