Japan Travelog: Part 3. Personal Finance
You may be aware that some political parties and union advocates have argued that, to develop Canada Post’s viability, financial services should be offered at post office branches. I am not sure how common that is in other countries, but Japan’s post offices have long offered banking services. Our son has had such an account since arriving in Japan more than five years ago. One of the nice parts of their services is that they provide online services in over a dozen languages, including English. The ATMs (or ABMs, if you prefer) likewise allow you to switch the instructions on the screen to English.
Another valuable feature of Japan’s postal banking feature is that post offices are everywhere. That makes moving your banking services within Japan much easier if you are likely to make significant moves within the country. While there are a few retail banks with national reach, my impression is that most banks are more regional, likely having only a single office in Tokyo if they are based elsewhere, for example.
In the foreground, a post office motorcycle – the red box in the back contains letters and small packages. In the background is a mailbox (in red), and the sign of a post office in this form: 〒
If there is a problem in Japan, it is tradition. Although there are online banks in Japan, Rakuten most notably, and the major regional banks have online access, if you need to go into a local bank branch, you will almost always need to complete a lot of paperwork and use an inkan (印鑑) or personal seal instead of a signature. In addition, foreigners will not be able to open a bank account without a residency card and proof of work or student enrollment.
In a Japan Times article at the end of 2022, the major banks indicated they were raising rates to between 3.50% and 3.79%. Given where rates are in Canada, this sounds pretty good. However, while the Bank of Canada had set rates to virtually zero following the impact of COVID-19, the Bank of Japan was already dealing with negative interest rates before that.
Mortgages can be amortized over as long as 35 years. Like Canada, the Japanese have been enamoured with variable-rate mortgages.
As a rule of thumb, Japanese banks allow mortgagors to borrow around eight times their annual income. No more than 25% of monthly gross income should be spent on mortgage payments. For example, if a mortgage requires payments of 125,000 yen per month (CA$1,136), your monthly income will need to be at least 500,000 yen (CA$4,543).
BlackRock, the owner of the iShares brand of ETFs, has 29 Japan-domiciled ETFs available for purchase through discount/online brokers in Japan. However, Japanese index-based mutual funds tend to be very competitive in terms of expenses, and cheaper in many cases. An interesting observation is that while the “tickers” or symbols for stocks or ETFs are often made up of 2, 3, or 4 letters, in Japan, the tickers are made up of a series of numbers. For example, the iShares JPX-Nikkei 400 ETF has a ticker of 1364.
In addition to discount brokers, Japan also has companies offering robo-advisor services.
How would you like to calculate your investment returns on this ancient calculator? Called a soroban in Japanese, most are probably more familiar with the term abacus. My sister-in-law is so skilled in this tool that she can calculate a number by visualizing the resulting placement of the beads as she moves her hand in the air.
Government Pension Plan
Residents of Japan employed by Japanese organizations pay into Kosei Nenkin (Employees’ Pension Insurance), a national government-administered pension plan somewhat like the Canada Pension Plan. Payments are made in proportion to income up to a specified limit and are deducted from salaries and wages and remitted to the government.
This pension is made up of contributions made directly by residents of Japan who are not included in the Kosei Nenkin system. Participants in the Kokumin Nenkin (National Pension) system are effectively billed by the government and can pay their pension premiums at places like banks and convenience stores. The amount paid is a flat rate regardless of income. Participants are unemployed dependants, students, and permanent or long-term residents who are not hired by Japanese companies. Less is paid than in the case of the Kosei Nenkin system, but less is received as well.
Employment Pension Plans
To my knowledge, Japanese companies do not have anything like the defined benefit or defined contribution pension plans offered by many employers in Canada.
Private Employment Savings
NISA (Nippon Individual Savings Account)
The Nippon ISA (NISA) allows people living in Japan to invest in the stock market without paying taxes on their capital gains or dividends. Modeled on a British individual savings account, NISA is designed to encourage individuals in Japan to invest in the stock markets. A NISA account can be opened at many financial institutions, including most banks and online brokers. NISA accounts offer a tax savings opportunity for stocks and investment funds, meaning that for a period of either five or twenty years, all dividends and capital gains are tax-free. This system is going to be updated in 2024 to extend the tax-exempt period indefinitely, within specific contribution limits.
iDeCo (Individual Defined Contribution)
Unlike the NISA, this is for the person committed to living in Japan until age 60 or longer because participants in this plan are not allowed to withdraw from the plan before then. My reading suggests that it allows for tax deductions like the RRSP when contributing and tax-free income when withdrawing, like the TFSA.
To my knowledge and recollection, insurance for property and automobiles has nothing particularly unusual from a Canadian perspective.
Life insurance is also widely purchased in Japan in both term and permanent forms.
Health insurance can be provided through employment, but it is also available through the government to every resident of Japan. I recall a missionary in Japan who had spent decades paying for any health care services out-of-pocket and then getting reimbursed by his agency. However, when he required heart surgery, he only needed to pay into the national health system for a few months to have his surgery qualify for payment under the government system. Indeed, with my history of kidney disease, I enrolled in the national healthcare insurance system as well.
Whether Japan’s healthcare system is good is another matter. In my understanding, every physician is a specialist, and the patient needs to know which doctor to see to get the diagnosis and treatment. Furthermore, many physicians operate small clinics where they prescribe and dispense medications, creating a potential conflict of interest.
Another instance from my own experience is that because of my kidney disease, the nephrologist I saw wanted to hospitalize me for a solid two months to run tests. This was even though doctors in Canada do not do that for my particular form of disease. I quickly moved to another doctor at another hospital who was less keen on hospitalizing me immediately. Even at that, I spent two weeks in hospital before that year in Japan was done, a circumstance that would not have occurred in Japan.
From the perspective of the foreign resident in Japan, according to Japan’s laws, the laws of the country of citizenship will apply. However, if Japanese citizens are involved, it is often the case that a will is not drawn up and the co-heirs of the estate will need to collaborate to find a mutually acceptable solution as to how the estate is to be divided. As this can lead to all sorts of trouble, an application may need to be made to family court.
I am not prepared to say that any of these approaches are superior to the approaches to financial matters in Canada. Some may be decidedly inferior. However, any opportunity for comparison helps in considering ways in which improvements can be made in other jurisdictions.
This is the 217th blog post for Russ Writes, first published on 2023-10-02
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.
Image: Mount Fuji taken from Fujinomiya, October 2, 2023, approximately 12 noon.