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This has been a record-breaking year for the Japanese financial markets. In March 2024, the Nikkei breached the JPY 40,000 mark. We’ve had increased IPO activity, with 97 companies having gone public, raising over JPY 570 billion. We’ve also seen a surge in private equity deals, with values nearly tripling the annual average from 2018 to 2022. This backdrop has drawn an unprecedented flow of foreign capital into the Japanese financial markets, with foreign investments in Japanese equities reaching a ten-year high. What were the core reasons for the extraordinary performance of Japan’s financial markets, and what makes Japan attractive to foreign investors today?
One of the driving forces of this active market is that on the institutional and wholesale side, there has been corporate governance reform, but our core business is retail. For that, there was recently the introduction of the Nippon (Japan) Individual Savings Account (NISA), and the government expanded the tax exemption for the accumulation of wealth by three times the previous amount and two times more for other investment aspects. Overall, JPY's 3.6 million annual retail investment is now tax-exempt, and that has brought a lot of capital into the retail investment market.
The biggest impact was made by the former Kishida administration in promoting Japan as a capital investment hub. At the same time, he was also focused on further developing business and the semiconductor industry in Japan. Another factor is China's economic performance and shift away from capitalism, so foreign investors have shifted their capital resources more to Japan. Foreign capital pouring into Japan was also helped by the Japanese market environment. Japan’s market is big, and its legal and accounting infrastructure is well developed, which has made it a reliable and trustworthy destination for foreign investors.
Japan is also known as a safe and sound country and society with good food, and enjoying the country is made easier by the depreciation of the yen. October and November are very nice seasons in Japan, and maybe not so coincidentally; it is the time of year when we get a lot of foreign investors coming to the country. All these factors have helped foreign investors look into Japan with the emergence of potential new businesses.
In the media world, there is now a big debate on the future of Japan, with two sides of the narrative. One side has the pessimists who argue that the performance of Japan’s financial market has mainly been triggered by some of the external factors you mentioned, like the downfall of China and the weakening of the yen. They argue that should those factors change, we will see a big reversal in capital flows. The other side has Japanese institutions arguing that their internal changes, like NISA and the corporate governance reforms, will sustain the market. The big question that everyone is asking is, should the macroeconomic conditions normalize? Will those internal reforms be enough to push the bullish momentum forward?
There will be good support, but the political situation is going to be unstable. Until now, the political landscape has been pretty stable, but that changed with the election, and now I expect it to be unstable, which is going to be a problem because, for investors, the political situation is very important. Maybe a lot of investors are looking at Japan’s political situation and will decide to go home or to another country.
Do you really believe that there’s going to be a big change, that it will not be a continuation of the previous policies and environment?
Our main customers are retail investors, and they are basically followers, but there may be some negative impact from the government's instability on their investment activities. Retail investors are very flexible, so if Japan is not doing well, they can invest overseas, and once Japan returns to prosperity, they can invest in Japan again. As a platform provider, we facilitate these kinds of free-will investment opportunities to benefit retail investors.
As a company that focuses on retail investors, do you believe the NISA account investments will primarily flow to international opportunities or to Japanese assets? Additionally, what do you think is the role of a brokerage, such as yours, in disseminating information to help the public make those decisions?
Since retail investors tend to be followers, they usually follow what is doing well to create and expand their assets. As a platformer, our role is to provide opportunities for retail investors to choose how to invest their assets freely. It is not NISA's role to drive investors into Japanese assets. Rather, the economy is the driving force that makes the Japanese market flourish and attracts domestic investors.
The US market is currently doing better in terms of growth, so for index funds, the popularity concentrates more on the US, but half of individual equity investments are directed towards Japanese stocks. These are usually not growth stocks; rather, they are mature companies with high dividends.
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Rakuten Securities was founded in 1999 and has become one of Japan’s leading online brokerage firms. In 2022, you switched to a holding group model to support your subsidiaries. In terms of financial product offerings, you have domestic and international stocks and mutual funds, ETFs and Forex, and bonds and CFDs. You also have specialized services for NISA, and you have your robo-advisors and Raku-Wrap as well. How does Rakuten Securities service lineup help the company position itself as the brokerage firm of choice to individual investors, and how has switching to a holding structure benefited the company over the past two years?
Rakuten Securities is part of the Rakuten group, and a comprehensive ecosystem has been created under this Rakuten brand—the biggest advantage of being able to learn and the interactions that can be shared on other platforms. There is also an interconnectivity between the Rakuten group services. For example, Rakuten Bank and Rakuten Card can be connected to Rakuten Securities for customer convenience. Also, since “Rakuten” is well known, we can take advantage of different customer touchpoints to acquire many first-time investors to invest with us. We also provide not only equities but also a diverse range of products that customers can invest in. Our support and advisory system has an easy-to-use interface and experience. With all these factors, we are raising our customer attractiveness.
You just touched upon the benefits of that ecosystem from which Rakuten Securities individual investors can benefit. Something that we found very interesting is that Mizuho Securities increased its ownership ratio in Rakuten Securities in 2023. Can you tell us what synergies you’re able to achieve from this and how your operational strategy has changed as a result?
The capital alliance with Mizuho Securities began in 2022, and they now own 49% of our equity. That has given us an advantage in creating new products. We have multiple collaborative projects, some of which have already been launched. One project includes selling ECM and DCM corporate bonds through our platform to our retail investors. Mizuho Securities is the syndicate for these corporate bonds, and we can differentiate ourselves from other competitors by being able to provide these corporate bonds, which are conventionally purchased by other companies and institutional investors.
In 2024, we initiated a new company shared by Mizuho Securities and Rakuten Securities, which serves as an advisory service as an independent financial advisor (IFA). The Mizuho collaboration also includes a future prospect in providing online services through collaboration that goes beyond inter-securities. For example, Rakuten Securities provides account linkage services to Rakuten Bank, and that same model could be expanded to Mizuho Bank. This would also allow Rakuten Securities to expand the business target and scope to those with accounts at either Mizuho Bank or Rakuten Bank. Mizuho will be able to differentiate its services by strengthening its online presence and offering conventional face-to-face services through Rakuten Securities.
When I arrived in Japan in 2016, by far the biggest online brokerage was SBI Securities, and then I believe you were more or less equal around 2020, with around six to seven million accounts. Rakuten Securities then skyrocketed from 2022 to 2024. For example, you gained a million new accounts in a recent four-month period. It’s quite a remarkable success story. How were you able to catch up and go forward so fast?
The biggest trigger for us was the introduction of the NISA program. When it was established, investment became more open to the public, and when this started, we were active in connecting all the services that we had. For example, we already had a connection between Rakuten Bank and Rakuten Securities whereby you could use a credit card to make a mutual fund investment. There were also universal points you could gain through different group activities and use in diverse ways, including investment in stocks and mutual funds in Rakuten Securities, rather than using in shopping. For those people who were interested in making investments and who were already using Rakuten group services, choosing us as the platform or tool was convenient and represented a brand they already trusted.
I think it’s quite difficult to attract both newcomers who need a very user-friendly UI and a lot of information and experienced traders who are looking for different functions. How were you able to bridge that gap in order to attract both?
We have been strengthening our platform for both the existing, experienced traders and beginners. For day traders, we have high-speed investment tools, and we have also strengthened the services for beginners. Altogether, as a platformer, we can cater to any investor level.
In 2014, you opened Rakuten Securities Bullion in Hong Kong, offering a unique platform with commission-free trading and high leverage catering to the region’s dynamic trading demands. In 2017, you entered a joint venture with Kenanga Investment Bank to establish Rakuten Trade, the country’s first fully online equities brokerage that enables Malaysian investors to access stock trading and investment management through a digital-first approach. Can you tell us about the challenges for your global operations and how you’re overcoming them, and do you have any plans for further expansion, with or without partners? If so, where and what does a partner of choice look like for Rakuten Securities?
The Rakuten group's strategy is to expand its sphere to the global arena, providing comprehensive services. Following that strategy, Rakuten Securities has expanded overseas. We have established an online brokerage business model in Japan, and we want to apply that to overseas markets, especially those centered on the Asian regions. We have started with Hong Kong and Malaysia.
For Malaysia, we established a joint venture with Kenanga Investment Bank Berhad, the biggest brokerage firm company in Malaysia, as Malaysia’s first fully online securities company. Kenanga is a strong local player and has a nudge for the Malaysian people and culture. Our strategy is to develop roots in local communities, which takes time. We need to understand the local market and business culture to provide a brokerage service for local and global stocks successfully. We have dispatched a few members from Japan and have asked the locals to join the company, with them primarily driving the company since they understand the local community mindset.
In Malaysia, since our business model is a stock brokerage, the local regulations require that we have a joint venture with a local company, but in Hong Kong, our business is a margin FX, focusing on a global product. That is the same business model everywhere in the world. Therefore, we have a 100% owned subsidiary, but we have local staff to do marketing and to help penetrate the market.
Are you currently in the early stages, or are you already looking for partners?
We are always looking for new opportunities and partners. We will have discussions and consider how to define our business model and how to find good partners.
Talking about strengthening capabilities, I am curious about some of the recent moves you’ve made. You recently invested in Nakano Asset Management. This is quite interesting because the previous company, founded by Nakano, was one of the pioneers of no-load funds with very few fees. You also invested in the Japan Alternative Markets (JAX), which is the new PTS company. Could you explain the rationale behind those two business moves?
Both moves were based on a common concept, which is how to provide the best service to our customers. For the Nakano case, that’s an investment trust product with an active strategy and a long-term investment focus, and they are great advocates for individual investors. The founder is a guru for long-term investments, and most of our customers are long-term investors looking to generate future assets, so we hope to provide Nakano’s products to these customers.
For JAX and PTS, we are always looking for the best trading price for our customers. JAX is the new PTS company, and it is planning to expand its business not only with PTS but also with 24-hour trading for individuals. They also plan to provide the best price for foreign equities trading in the future. Overall, you can consider the JAX concept to be the PTS for individual investors.
It’s quite interesting because one of them is about product diversification, and the other is about trading infrastructure. Looking at the future, what do you see as the next step to improve Rakuten Securities?
We do everything for individual investors, and for that, another important strategy we are working on is developing our advisory services. This is very important. Also, since we have a huge number of NISA accounts, and many of these are people investing for their future after retirement, they will accumulate assets. As this happens, they will wonder how to manage this money, and more than just investing in one investment product is required. They have to diversify, so we want to serve these kinds of people, not trying to push or sell products but rather by asking relevant questions and offering appropriate advice.
I’m always looking at Charles Schwab’s business, which started as a discount broker but has expanded its business model to more advanced areas very successfully. They are now the biggest retail broker in the US, so their advisory business model is a good reference for us, and we are now considering how to implement their model in a way that suits the Japanese market. We see this kind of business as the biggest opportunity for us in the next five or ten years.
Please imagine that we will come back to interview you again in 2029, which will be the 30th anniversary of the company. What would you like to have accomplished by then?
Rakuten Securities should be a company that supports everyone and addresses concerns about money by giving the best financial well-being. And I always tell our people not to push the product, to provide the solution for each customer. We are not a traditional brokerage company. We don’t push; we just support customers and provide solutions. This is our way.
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