Is Abenomics starting to come apart at the seams?
We recently highlighted the BOJ consumer surveys which point to an increasingly negative looking Japanese population. First we had worries over income, employment and current economic conditions, and then Adam highlighted the lower expectations that people have over prices.
In a further blow and snub to Abenomics, it’s been reported that the new tax free savings plan introduced in January has been poorly received by the Japanese.
In an effort to get the hoards of Japanese savings into riskier assets the NISA program is offering capital gains exemptions for all equity investments placed within it. What is putting off the public is the fact that the savings account only runs for 5 years and then has to be redeemed and restarted.
Out of an estimated $8.5 trillion of savings less than $1tn has been invested in the NISA by the under 40’s in Q1.
Atsuto Sawakami who runs the $2.9bn Sawakami fund concurs saying that;
“NISA is meaningless as it’s only good for five years. Young people have to work for 30 or 40 more years. Tax cuts on long-term investment are key.”
Just over ¥1tn did flow into Japanese equities via the NISA in Q1, a financial services agency report showed in June, and the over 60’s contributed around 65% or ¥650bn. Those in their 20’s and 30’s made up 8.5%.
To help kick people into the NISA scheme Japan raised the capital gains tax outside of the NISA to 20% in January. The low take up is prompting the government to consider more than doubling the allowance of ¥1m to ¥2.4m and lowering the age limit for investing to 18 from 20.
Sawakami says that raising the ceiling;
” only benefits seniors already investing in securities and would be meaningless for regular folks, let alone young people. Encouraging people to switch from savings to stocks is meant to help them build assets over the long term and to send money into the stock market.”
According to the FSA report part of the problem is that young people do not have the funds and knowledge of the program. Sawakami says that young people do not know much about the scheme because they don’t have money and think it’s for the rich.
As we’ve noted previously, the biggest change Japan can make to its fortunes is by changing the mindset of its people that has been the same for the last 20+ years. That’s no mean feat and highlights the scale of the task facing Abe & Co. Being in charge, having the BOJ in your pocket and pumping billions into the economy will stand for nothing if the people don’t buy into it and that will be the difference between whether Japan succeeds or fails. If it fails then the last 20 years could look a cake walk compared to what will come.
The Japan Times has the story here