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Buying stocks has been a traditional investment option the world over, and Japanese stocks are no exception to this rule. For U.S. residents, some Japanese stocks are available for purchase via American Depository Receipts (ADRs) and exchange-traded funds (ETFs) at virtually any major stock broker since they are listed on U.S. exchanges.
Investors in Japan have to follow a different protocol before being able to trade and invest in the stock market. If you wish to trade or invest directly in Japanese stocks, then read on to find out the steps you’ll need to take to get started.
About the Japanese Stock Exchange
Japan’s principal stock exchange, the Tokyo Stock Exchange (TSE/TYO), was founded in 1878. It is currently the world’s 3rd-largest stock exchange by market capitalization with a market cap of $5.68 trillion as of June 2020. The exchange is the home of such well known stocks as Mitsubishi, Sony, Honda and Toyota.
The exchange has a long history, having combined with Japan’s 10 other exchanges in 1943 to become the Japanese Stock Exchange, which was subsequently closed and restructured after the end of World War II. The Tokyo Stock Exchange reopened officially in May 1949.
The 1980s saw an exponential rally in the Japanese stock market over a period of 9 years — making up as much as 60% of global stock market capitalization. During the resulting Japanese asset price bubble, the Nikkei 225 Index rallied from 6,649.50 in 1980 to close at 38,915.87 on December 29, 1989, which remains the Index’s all-time high.
Since making that peak in 1989, the Nikkei 225 Index has traded under the 8,000 level twice, initially in 2003 and then in 2009. The index currently trades at the 26,652.52 level and had a yearly range of 16,358.19 to 26,894.25 thus far in 2020.
The TSE/TYO currently makes up part of the publicly traded Japan Exchange Group (JPX), which arose from the Tokyo exchange’s merger with the Osaka Stock Exchange in 2012. As of December 2020, the TSE/TYO had a total of 3,733 stocks listed on the exchange.
TSE/TYO trading hours are in Japan Standard Time (JST) that corresponds to Greenwich Mean Time (GMT) +9 hours. Trading on the Tokyo exchange is from Monday through Friday, 9 a.m. to 11:30 a.m. and 12:30 p.m. to 3 p.m.
Trading Stocks in Japan
Automobile and electronics companies are among the most recognizable Japanese stocks. You can also trade the stocks of Japanese companies that participate in a wide range of other industries, including food, textiles, chemicals, pharmaceuticals, oil and coal products. Ticker symbols for TSE/TYO listed stocks consist of a 4-digit number that uniquely identifies them on the exchange.
Each company’s stock has a minimum purchase amount per transaction that is decided by the company that issued the stock. For example, if a company has a minimum of 100 shares per transaction, you must have the funds to purchase the minimum 100-share lot. The minimum transaction size is 100 shares for the majority of companies listed on the TSO/TYO.
When entering an order on a Japanese online trading platform, you’ll have the option of either entering a “Sashine” (指値) order, similar to a limit order where you specify your price and wait for the market to trade at your price, although the order is canceled at the end of the trading session. You can also enter a “Nariyuki” (成行) order, which is the Japanese equivalent of a market order where the price of your relatively immediate stock fill is determined by the prevailing market price.
When you decide to sell your Japanese stock, you are obligated to report the amount of profit or loss on the Japanese annual earning declaration (確定申告). The amount you made or lost is considered by the tax office that then decides how much tax you have to pay. This is an important step with regard to your tax liability, so you should not ignore the official requirement to report gains or losses on your stock transactions.
Most of the largest and best capitalized Japanese stocks can be bought and sold through American Depository Receipts (ADRs). These receipts are either listed on major U.S. exchanges like the NASDAQ and New York Stock Exchange (NYSE), or they trade in the U.S. over-the-counter (OTC) stock market.
If you plan on investing in Japanese stocks from outside of Japan, you can instead select an international broker with access to the TSE/TYO or use the ADRs and ETFs listed on U.S. stock exchanges. If you’re a Japanese national or a permanent resident of Japan, then you can follow the steps listed below to begin buying Japanese stocks in Japan.
How to Buy Japanese Stock
- Open a Trading Account.
You must first open a Japanese trading account to buy and sell stocks directly on the TSE/TYO, which you can do if you are a Japanese national or have a Zairyu Card to officially prove your residential status as a foreigner living in Japan.
Having knowledge and familiarity with the Japanese language is a big plus to begin trading stocks directly in Japan, although some brokers can provide English language support for their foreign customers. Two Japanese brokers that provide trading accounts for foreigners include SBI Shoken (SBI証券) and Rakuten Shoken (楽天証券).
If you instead open an account with an international broker, you may even be able to trade the largest Japanese stocks free of commissions. Also, most U.S.-based stock brokers let you trade ADRs that may be less costly than trading Japanese stocks via a Japan-based broker, so keep it in mind when you select a stock broker to trade.
- Fund your Trading Account.
You should ideally already have a Japanese bank account with a local bank since you’ll have to transfer funds from your bank to fund your trading account before you can purchase Japanese stocks. The 2 brokers mentioned above provide direct links to most major banks in Japan.
Rakuten Group also owns its own online bank that you can link to your Rakuten trading account. If you plan on trading in other markets, you might instead opt for a good international broker that allows you to buy and sell stocks in Japan and elsewhere. Also, if you plan on trading only large-cap Japanese stocks, then you might choose an international broker since you could save on commissions versus a Japanese broker.
- Start Trading.
Once you’ve completed the steps outlined above, you’ll have a live stock trading account open with either an international or a Japanese broker. You will also need to gain access to a trading platform supported by your chosen broker to enter your trades if you wish to do so online.
Best Online Brokers for Trading in Japan
While you can probably trade online through a Japanese broker, you may need knowledge of the Japanese language to efficiently navigate its website and supported trading platforms. Besides the Japanese brokers mentioned above, you can open an account with a reputable international broker such as Interactive Brokers or Saxo Bank that both offer stock brokerage services in Japan. You can compare various stock brokers that provide access to the Japanese stock market using the convenient table below.
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
The TYO/TSO’s most active stocks include some highly recognizable names among Japanese companies, such as Sony Corp. (TSE/TYO: 6758, NYSE: SNE), Nissan Motor Co. (TSE/TYO: 7201, OTCBB: NSANY), Mitsubishi Motor Corp. (TSE/TYO: 7211, OTCBB: MMTOF) and Softbank Group Corp. (TSE/TYO: 9984, OTCBB: SFTBY). All of these major Japanese stocks are also listed as ADRs on U.S. exchanges and can be traded via a standard U.S. stock brokerage account. A table of the biggest gainers and losers in the Japanese stock market appears below.
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Are Japanese Stocks a Good Investment?
The Oracle of Omaha, Warren Buffett, turned 90 this year. His investment company, Berkshire Hathaway (NYSE: BRK-A) has among the most impressive stock portfolios and returns in the business. A subsidiary of that company recently made a $6 billion investment in 5 major Japanese trading houses. The Japanese companies that Buffett invested in include: Mitsubishi Corp. (TSE/TYO: 8058), Itochu Corp. (TSE/TYO: 8001) Mitsui & Co. (TSE/TYO: 8031), Sumitomo Corp. (TSE/TYO:4005) and Marubeni Corp. (TSE/TYO: 8002).
These Japanese trading companies have similar business models to Berkshire Hathaway, investing primarily in mining, energy and consumer goods. Other money management firms, such as Franklin Templeton for example, have done extremely well for themselves and their clients by investing in Japanese stocks. While opportunities exist in all capital markets, the Japanese stock market is well worth considering for any serious investor.
Frequently Asked Questions
How can foreigners buy Japanese stocks?
Either by opening a trading account with a Japanese brokerage firm or through American Depository Receipts (ADRs).
How can a beginner invest in Japanese stocks?
There are several ways to include American Depository Receipts (ADRs), mutual funds or ETFs.