Japan stands out as the most significant area for wealth across Asia, with a significant population of billionaires and a highly developed economy. However, the country’s ageing population may pose difficulties in the future. John Schaffer delves into WealthInsight’s findings to access the growth and trends of the wealthy population in the country
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Japan is certainly one of the largest hubs for wealth globally. According to Julius Baer’s Wealth Report: Japan 2014, the country is home to half of all high net worth individuals (HNWIs) across Asia.
The WealthInsight database shows that in 2014, there were over 2m HNWIs in Japan, holding $2.9trn in total wealth. The total growth rate of HNWIs increased to 1.4%, up from a 0.8% growth in 2013. The high concentration of wealthy in Japan is no surprise as the country is the world’s third largest economy.
Economic climate
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By GlobalDataJapan’s GDP was worth $4.6trn in 2014, representing 7.42% of the world economy. This follows record highs in the country’s GDP in 2012 of $5.9trn.
The current economic climate in Japan is centred on a set of reforms introduced by Prime Minister, Shinzo Abe, which are commonly referred to as "Abenomics".
Introduced when Abe took office in December 2012, Abenomics is an attempt to reflate the Japanese economy after two decades of a deflationary climate, with a short term goal of raising inflation levels to 2% whilst boosting domestic demand and GDP.
Abe set out his economic approach as "three arrows" including: fiscal expansion, monetary easing and structural reform.
A large fiscal stimulus was applied to the economy, including $116bn of direct government spending. The government also carried out a quantitative easing monetary policy, resulting in the value of assets held by the Bank of Japan reaching 57% of GDP in 2014.
However, despite the government stimulus, Japan fell back into recession in the second quarter of 2014 after the introduction of an 8% sales tax, thus failing to meet the 2% inflation target.
Although growth figures for 2014 had been particularly gloomy, the Japanese economy grew at an annualised rate of 3.9% during the first quarter of 2015, significantly beating market expectations of 2.8%. The growth can be attributed to an increase in inventory investment, accounting for 2.2% of annualised growth.
Even when inventories are taken out of the equation, the Japanese economy is growing above the Bank of Japan’s estimate of 0.5% per year – suggesting a recovery after the 2014 recession.
However, a significant threat in the long term, to the Japanese economy, could be the country’s ever ageing population. One in four Japanese are over 65-years, rising by 1.1m in 2014 to 33m and outnumbering those aged 14 or under by two to one. The total population has also shrunk for the fourth consecutive year – resulting in a population that equals figures from 2000. The birth rate in Japan is particularly low, with 1.4 children for every woman.
The issue arises over how the ever-dwindling number of workers will be able to provide for the mass elderly population. The population situation could have a severe effect on Japan’s GDP and economic growth.
Wealthy population
Tokyo has one of the most significant global populations of ultra high net worth individuals (UHNWIs) at 3,575. The ultra wealthy population is only second to London’s 4,364 individuals. During WealthInsight’s review period (2010 – 14), Japan’s UHNW population increased by 20.9% from 13,814 in 2010 to 16,703 in 2014.
Other significant populations of UHNWIs include Osaka, Japan’s second largest city with 1,471 wealthy individuals.
The richest individual in Japan is Tadashi Yanai, with a net worth of $25.6bn.Yanai is the founder and president of Fast Retailing, a retail holding company of which Uniclo is a subsidiary. Other notable ultra wealthy Japanese include Masayoshi Son ($13.3bn), CEO of the mobile internet powerhouse Softbank. Nobutada Saji ($10.9bn), former CEO of drinks company Suntory Holdings, is also one of the country’s wealthiest individuals.
Japanese wealth comes from a variety of industries. Financial services were the primary source of wealth for 19.1% of local HNWIs in 2014. Technology and telecommunications was the second-largest source of wealth at 14.7%, followed by manufacturing with 11.3%, media with 9.8% and retail and fashion and luxury goods with 8.0% in 2014.
Private banking market
With such a large population of HNWIs, there is significant potential for wealth management and private banking in Japan.
The largest players in the domestic private banking market include Sumitomo Mitsui Trust Group, Mitsubishi UFJ Financial Group, Nomura Wealth Management, Mizuho Financial Group, Resona Holdings, and Bank of Yokohama.
Although the market looks favourable for Japanese private banks, The WealthInsight report says that "many Japanese people are suspicious for opting for private banking for their intangible services". The services that domestic private banks offer revolve around investment planning, tax planning, and trustee advisory services.
International banks have a far smaller share of the market. However, institutions such as UBS, Credit Suisse, Union Bancaire Privee, Unicredit bank, HSBC Private Bank, Deutsche Bank, Citibank and Societe Generale are prominent in the private banking market.
International private banks in Japan concentrate on offering products like equities, bonds and derivatives.
Asset allocations
According to the WealthInsight database, Japanese HNWIs assigned a significant amount of their asset allocations towards Business interests at 29.8% in 2014. Total allocations to equities were 25.6% in 2014 and are forecast to rise to 31.2% in 2019. Other allocations included real-estate (19.7%), fixed income (9.8%), cash (7.9%) and alternatives (7.1%)
During the review period between 2010-14, significant growth was indicated in equities (90.3%) and business interests (34.0%). However, growth is expected to decrease over the forecast period due to increasing volatility in the world economy and a growing interest in other asset classes.
Alternatives, in particular, are set to have strong growth levels in WealthInsight’s forecast period, with a greater allocation towards Hedge Funds, real estate investment funds, private equity, structured products and derivatives.
