Two quotes from a recent Financial Times article about wealth management in Japan.
“That conservative tendency shows in the way they manage their wealth, with a large proportion kept in cash in the domestic market.”
“While sitting on cash has worked in the past, after 15 years of deflation, clients are beginning to realise that they need to address the risks of inflation, Mr Humair says.”
Unlike the US, a feature of the Japanese government debt situation is the lack of foreign debt holders. I have not updated my Japanese Flow of Funds data for a while. But as of June 2010, this figure (Assets/-Central government securities and FILP bonds/Overseas/Stock) is 4.56% of the total. In the US, the number is above 40%.
My best guess is that this is a result of regulation (difficulty to invest overseas) and institution (the large amount of funds tied to Japan Post). Perhaps too, foresight. Given the strength of the Japanese yen over the years, the rate of return on foreign asset will have to be high to justify the investment. From December 1, 1997 to June 30, 2010, the yen underwent a 45.6% appreciation, or 2.99% annually. [log(1.456)/((datenum(2010,6,30)-datenum(1997,12,1))/365.250)]
Reference: Wealth: Investment advisers have eyes on growing market [FT.com],
Flow of Funds [Bank of Japan],
Historical Exchange Rates [Currate.com]