One of myriad brochures offering trips to Zurich, Geneva and Luxembourg aimed at Japan’s well-to-do offers the provocative call “Now is the time to evacuate your assets!”
During a nine-day tour that ranges from 698,000 yen to 1,080,000 yen per person, participants knock on the door of a private bank along Lake Geneva and another in the city of Luxembourg to learn how the institutions can provide them with tailored services to manage their wealth in various currencies. In their free time, the travelers golf or go on excursions to the Swiss Alps.
“The number of telephone calls about our services has jumped since around late last year,” said Masayasu Akiya, president of Japan Private Banking Consultants. The Tokyo-based consultancy, whose service includes mediating between Japanese customers and private Swiss banks, organizes a tour every year.
The monthly number of the firm’s new customers seeking a bank account overseas has grown almost fivefold, with more than 20 new clients coming on board every month.
Japanese households park a considerable chunk of their combined 1.4 quadrillion yen in financial assets in domestic low-risk products, including bank and postal savings accounts and government bonds.
But rock-bottom interest rates and the protracted stock slump are beginning to sow frustration, and worried about more bank collapses at home, Japanese depositors and investors are gradually converting portions of their yen assets into higher-risk, higher-yield foreign currency financial products and making use of overseas banks.
Many, especially the wealthy, elect this course to protect their assets from a domestic financial crisis; others hope to enjoy much higher interest rates abroad.
“Some clients say just finding a safe place for their money is enough,” Akiya said, noting their goal is not necessarily to reap high returns but instead ease their fears.
“The people’s trust in Japanese financial institutions has dropped dramatically over the past five years,” he continued.
Every time bad news about Japanese banks breaks — as it did last week when Resona Holdings Inc. asked for a bailout of taxpayer money — Japan Private Banking Consultants receives more telephone calls than usual, Akiya said.
Overseas-based financial institutions target a wide range of customers, offering products that include mutual funds and dollar- or euro-denominated bond investments. These funds are popular apparently because investors believe that despite — or because of — exchange-rate volatility, they could gain higher returns than from Japanese government bonds.
“This year, we are facing a move to the next stage,” said Nobuhiko Ohkubo, senior specialist in corporate communications for Fidelity Investments Japan Ltd., a unit of the U.S. giant. Fidelity tapped into Japan in 1969 as the first foreign investment-management firm.
Although the Japanese unit still underscores Japanese stocks as its core investment tool for the long term, it has been adding funds of dollar-denominated bonds to its lineup, Ohkubo said.
Placing more emphasis on foreign-bond funds seems a logical strategy for asset management firms in Japan, many of whose mutual funds have been hit hard by Japan’s stock plunge over the past decade.
Fidelity’s plan was partly driven by the results of a poll the company carried out in April that found 75 percent of 500 bond-fund investors in Japan held foreign portfolios.
The trend was confirmed by statistics released the same month by Kinyu Data System Inc., a financial research firm, that show money flowing into mutual funds which invest in foreign bonds surged 65 percent, or 1.9 trillion yen, from a year earlier.
So far, Fidelity’s strategy has gone well. On April 30, it launched the U.S. Investment Grade Bond Fund, which invests in U.S. government, government-related agency and corporate bonds. The size of the instrument settled monthly expanded fivefold to nearly 600 million yen in the first month. The size of the annually settled version grew more than 20-fold to 2.44 billion yen.
Meanwhile, the Global Sovereign Open fund, launched in 1997 by Kokusai Asset Management Co., has been rapidly growing in recent months. The fund invests in highly rated bonds of major industrialized nations, in cooperation with Cititrust and Banking Corp., a member of the U.S.-based Citigroup.
The fund’s outstanding assets stood at 1.67 trillion yen as of April 30, up 160 percent, or about 1 trillion yen, from a year earlier. It marked the biggest increase among all mutual funds sold in Japan during that period.
The fund’s annual dividend is currently more than 3 percent after deducting currency profits, tax and service charges. A 2 percent commission is charged for the first year, but the return is still higher than one-year interest on dollar time deposits, usually at 0.2 percent or 0.3 percent.
Including foreign-exchange profits, the annual return is around 14 percent now; customers who bought the fund a year ago can gain that much thanks to the yen’s weakening against the dollar and euro.
But foreign-exchange rate changes could also hurt investors. A stronger yen reduces the value of funds invested in these currencies when investors repatriate their investments and dividends.
Those who invest in foreign-bond mutual funds may not be fully aware of the currency risk.
Yasuhiro Hanamura, general manager of research of Morningstar Japan K.K., a unit of a U.S. investment research company, said the foreign funds’ popularity is supported by seniors.
“Those seniors with enough savings to buy financial products don’t care much about currency risks,” he said. “They purchase the funds to get a certain return every month like a pension.”
He also pointed out that the brisk sales of foreign-bond funds has been helped by Japanese banks that are eager to earn sales commissions.
In April, the banks sold 24 percent of all mutual funds sold in Japan, including foreign-bond funds, up sharply from 18 percent a year earlier, according to Morningstar.
Brokerages, whose core stock-brokering business has been sluggish amid the prolonged faltering of Japanese stocks, are also trying hard to boost fund sales, Hanamura said.
In the year that ended March 31, total net investment by Japanese mutual funds in foreign bonds reached 2.2 trillion yen, the highest level in at least 10 years, according to the Finance Ministry.
But the volume, which may include purchases by corporate investors, is still tiny compared with Japan’s 1.4 quadrillion yen in personal financial assets. As of December, cash and bank savings stood at nearly 800 trillion yen, or about 60 percent.
Experts see Japanese making more overseas financial investments in the future. Japan’s era of high economic growth is long gone and the economy is stumbling, and thus diversifying investment overseas should be a natural course of action, Akiya of Japan Private Banking Consultants said.
For domestic financial firms hoping to take advantage of the trend, tying up with U.S., European, or Asian financial groups is becoming more and more important, said Yasuyuki Kuratsu, CEO of Research and Pricing Technologies Inc.
Expanded financial investment abroad will be a boon to such foreign financial institutions in Japan, which in turn will stimulate Japanese institutions, he said.
“I hope more and more money flows out overseas,” Kuratsu said, “because that will activate the financial business in Japan again.”
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