Risks and common mistakes

The Nikkei 225 peaked at 38,915 in December 1989 and did not pass that level again until February 2024. Investors who bought at the top waited more than three decades. The lesson is about starting prices and patience: a market can look strong and still be expensive, and a good economy does not guarantee good returns for a buyer who pays too much.

If you live outside Japan, the yen exchange rate affects almost everything. A weaker yen helps the profits of exporters such as car and electronics makers, but lowers the value of an unhedged holding in your own currency. If you live in Japan and invest in global funds, the effect goes the other way. Either way, you take on currency risk whether you plan to or not.

Japan is a single country with its own mix of industries, led by manufacturing, finance and trading houses. A portfolio concentrated in one country, or in a few well-known companies, moves with it. A global fund spreads the risk, and many investors treat Japan as one part of a wider portfolio.

High fees take a large share of returns over decades. Leveraged and inverse funds, monthly-payout funds, structured products and anything sold with a story, such as "guaranteed", need extra care. If you cannot explain in a sentence how a product makes money, you probably should not buy it.

Be wary of unsolicited calls, messages from strangers, and social media groups promising high or guaranteed returns, including offers that involve Japanese stocks or crypto. Check that a firm is registered with the Financial Services Agency before sending money, and never pay a fee to "unlock" returns.

Tax rules depend on where you live and your nationality. If you are not a Japanese national and have lived in Japan for five years or less in the last ten, you may be a non-permanent resident, taxed differently on income from abroad. Residents with large overseas assets may have to report them. US citizens and taxpayers face extra rules on funds held outside the US, called PFIC rules, and some Japanese brokers do not take US customers at all. Check your own situation with a tax adviser before investing.