J@pan Inc -- Day Trading in Japan

How to set up a stock trading account as a non-Japanese
By Yukie Lloyd

The Japanese stock market has risen over 50% in the last five years, and last year was the best-performing major stock market in the world. As a result, trillions of dollars of foreign money has been pouring into the Tokyo Stock Exchange alone over the last 12 months. Forbes.com reckons the increase was 38% last year to US$54.8 billion, about 160% more foreign investment than in 2003.

Missed Opportunities
In view of the numbers, some would say that it is too late to start an online stock trading account--that the best opportunities are already gone. However, when you consider that the Nikkei is still just 40% of its peak in 1990, and that only 3 million or so people actually own the 10 million online stock accounts in Japan - versus nearly 20 million individuals in the USA - it appears that the Japanese stock market may still have some life in it yet. This is particularly true when one considers the herd instinct amongst corporate investors; where excellent contrarian investment opportunities arise once the all-powerful media cans a stock.

Livedoor is a good example. Its stock, which was recently reviled a daily basis, dropped below 70 yen per share, even though its break-up value was said be more in the order of 189 yen. The media had a field day, publishing regular reports about one famous corporate shareholder after another bailing out. Needless to say, the rank-and-file shareholders panicked and dumped the stock as the delisting date loomed. Then, with just a couple of weeks to spare, four major foreign funds jumped in and snapped up 53% of the company - boosting the stock to JPY130 range before it settled down to JPY101. On a scenario like this, a savvy local personal investor could have easily spotted the opportunity as it unfolded, and picked up a 30% gain in just two weeks.

Who Can Trade Online?
Having whetted your appetite about the viability of Japanese stocks, the big question is, "How do I start trading them?" Unfortunately, unlike registering to receive an online trading account in the USA, if you want to trade Japanese stocks, even over the Internet, you need to reside in Japan. As illogical as this sounds, and we have requested an explanation from the Ministry of Finance, it is the rule. Acceptable proof of residency is a certificate of alien registration (gaikokujin toroku shomeisho), something that can't be fudged and can only be received if you really are living here.

If you are new to Japan, you get a certificate of alien registration by first coming in on a work, study, or some other mid- to long-term visa, issued in the usual fashion by the Immigration Office. Once established in Japan, you then find a place of abode (i.e., rent an apartment), then go to your local ward or city office to register both your residence and workplace (or school). Providing everything is in order, you will be issued an ID card, the alien registration certificate, that confirms your right to live and work/study in Japan.

For those readers who don't live in Japan, but who still want to trade stocks, the best solution is to set up an account with an established international stockbroker, such as Goldman Sachs, and execute your trade orders by phone, email, or some other means. Needless to say, this can be slow and expensive. One other possible idea, although it requires you to have a friend living in Japan, may be set up a stocktrading club (toshi kumiai) and then have him or her execute orders for the club's members. We don't know anyone actually doing this, but have been told that it is theoretically possible.

Brokerage Choices
Providing you meet the residency requirements, your first task is to choose a suitable online broker. Below we list a few of the many online brokers available, then look at three in some detail.

However, you should be forewarned that currently NO online broker operating in Japan offers an English language service. So if you want to trade, you're going to have to at least learn the relevant screens to do so.

Matsui Securities
Taking over a conventional securities firm from his father-in-law in the 80s, Michio Matsui moved Matsui Securities online in 1998 and in the process pretty much started the current online brokerage boom. The company is well known for its aggressive pricing, campaigns and free seminars. Surprisingly, given the prices, they also have a reputation for reliability and user-account protection.

Starting up with Matsui is simple if you're Japanese. They let you open a personal account without having to affix a seal. On the downside, because of heavy demand, they are slow to authorize accounts, reportedly around 10 to 14 days. If you are not a Japanese citizen, you will have to show your certificate of alien registration. Since Matsui is not prepared to receive inquiries in English, you must be competent in Japanese or bring along a Japanese speaker.

Set-up charge: Free
Per trade charge:
JPY100,000 or less: free
JPY100,000 - JPY 300,000: JPY315
JPY300,000 - JPY 500,000: JPY525
JPY500,000 - JPY 1 million: 1,050
More than JPY 1 million: JPY 2,100

Monex Securities

Started in 1999 by Oki Matsumoto with SONY, Monex is less intense than Matsui and some other online brokers. That makes it an ideal site for beginners. Monex became the largest online broker in Japan after its merger with Nikko Beans in 2005. It has about 650,000 accounts and assets of about JPY2.2trn.

In the end, we chose Monex for several reasons. One was that they are more foreigner friendly than most. Then there is their simple signup process, with straightforward instructions, welcome by those of us with imperfect Japanese. Finally, they don't require reams of paperwork proving your identity. All we had to do was provide a photocopy of our alien registration card. Turn-around after sign up was quick, less than five working days.

Monex also has a "mini-kabu" club where for JPY10,000 you can start trading stocks in small lots - allowing you to learn the market. They also operate an ECN called PTS (nighttime trading) that lets you trade from 17:30 through 23:59. Another nice thing about Monex is the volume of IPOs they handle - checking day-trader chat sites, they are supposed to be easier to get an allocation for a pre-IPO stock than most other brokers.

Set-up charge: Free
Per trade charge: JPY 1 million or less: JPY1,050
More than JPY 1 million: 0.105% of the total trade

E*Trade Japan
This is Softbank's online brokerage and is similar in operation to the US site.

That might be enough to sway experienced NASDAQ traders to choose E*Trade when opening an account in Japan. The company is regarded a competent broker with plenty of discount campaigns and pre-IPO allocations. However, its new account processing is reportedly very, very slow, taking on average about three weeks. Also, the home page is quite confusing owing to the information-heavy design. Perhaps this is the influence of the "more is better" syndrome that plagues Yahoo Japan as well.

Set-up charge: Free
Per trade charge:
JPY500,000 or less: JPY472
JPY500,000 ? JPY1 million: JPY840
JPY1 million ? JPY1.5 million: JPY1,050
JPY1.5 million or more: JPY1,575

Making the Application
For the purpose of this article, we decided to subscribe to the Monex Securities service. We went to the application page of Monex's web site. We filled out the online application form with the help of a Japanese friend, and entered in a fair amount of personal data. Once done, we pressed the send button and three or four days later an envelope containing the sign-up kit arrived by courier. Conveniently, all the information that we'd entered online was pre-entered into the paper forms. All we needed to do was to provide the necessary additional documents and affix our personal seal.*

Deciding Tax Method
In filling out the Monex (or any other online broker's) application form, one question that may stump you at first is how you want to pay your tax. Basically you have the choice of either Monex paying it for you, or paying it yourself by going to your local tax office and using a self-assessment tax declaration, due by March 15th every year. We chose to pay the tax ourselves, since this gives us the use of our own cash for the entire year, rather than having fees deducted from our Monex account per trade.

As a side note, taxes on profits from the sale of shares are treated differently from regular income tax. You can read more about them at http://www.mof.go.jp/english/tax/t axes2005e_c.pdf. However, in essence, you can treat your trading activities as a mini-business and deduct or carry forward losses to offset against profits in a latter year. Check out the Blue Form method of declaring tax, since this allows you to deduct the costs incurred in earning the income. The Japanese tax system is quite complex, so if you're not sure what to do, consider doing a consultation at your local tax office before making a decision.

Other Documentation
Once the application kit arrives from Monex, you have to supply identification. For Japanese, this can be a photocopy of a driver's license or passport. Non-Japanese applicants must provide a photocopy of their certificate of alien registration or certificate of registered matters. If the former, make sure that it is still valid and if the latter, ensure that it is valid for at least another six months.

We stuffed the signed documents into the supplied envelope and mailed them off. It's as simple as that! A few days later, we received our membership packet, complete with password, guide and rules, and a credit card application - just in case we didn't have one already.

The final step was to transfer some trading funds into the Monex bank account, the details of which were given in the membership packet. As soon as the money hit the account, using the web sign-on information in the same packet, we were ready to go.

Research References in English
To wrap up, although the purpose of this article is to help non-Japanese with the account establishment process, rather than trading, as a non-Japanese you will soon find that there is a dearth of information about listed stocks in English. Here are a few resources that may be helpful. One technique you can try is to pick up the ticker symbols on the Nikkei site, then go to Yahoo Finance or your brokerage charting page, and plug them in to get more detailed stock charts.

*A note on the type of seal, hanko or inkan, needed. Just as with starting a bank account, you can use a mitomein, an unregistered seal that is less formal than the jitsuin, which you must register at the local ward or city office. You can buy a mitomein at any hanko shop and ask them to carve your name either in Japanese or romaji (alphabetic characters). Although you can choose any character you like, you probably want to get a stylized version of your name in katakana - since that will be easier for Japanese speakers to match the characters to the actual phonetics of your name.