How To Invest In The Japanese Stock Market

By Jay White

June 7, 2015   •   Fact checked by Dumb Little Man

When active traders evaluate the global financial exchanges, they often mention the Japanese stock market as a good place to look for profit-making opportunities. The affinity for the Japanese stock market is based on the various similarities with its counterpart in the United States; to this effect, the Tokyo Stock Exchange (TSE) is as important to the economy of Japan as the New York Stock Exchange is to the American financial system. Even the NASDAQ provides a technology trading platform for the Osaka Securities Exchange, which specializes in listing derivatives and tech startup firms.

ADR Trading Through Retail Brokers.

From the U.S., investors can invest in Japanese securities almost directly by means of American Depositary Receipts (ADR), which give traders the opportunity to take market positions on equity shares of major firms such as the Toyota Motor Corporation, Matsushita Electric, Sony Corporation, and others. ADR shares listed on Wall Street can be traded just like any other stock on that exchange.

ADR shares are offered by most retail brokerages such as Fidelity and eTrade, and they can be easily traded online since they are subject to the rules of the National Associations of Security Dealers (NASD) and the Securities and Exchange Commission (SEC).

One important detail to note is the ratio of ADR to ordinary (ORD) shares; for example, the Sony ADR trades under the SNE symbol with an ADR:ORD ratio of 1:1, which means that each ADR is the equivalent of one common share. Toyota’s ADR:ORD ratio is 1:2, which means that Wall Street traders get two common shares of Toyota for each ADR they take a position on.

Exchange-Traded Funds (ETF)

Another uncomplicated method of playing the Japanese stock market is to trade ETF securities. For example, the iShares MSCI Japan (EWJ) is managed for the purpose investing in large-cap Japanese equities. Another ETF in this regard is the Wisdomtree Japan Hedged Equity Fund (DXJ), which seeks to eliminate risks posed by currency fluctuations. One of the great advantages of ETFs is that their management fees tend to be very reasonable.

Online International Stock Trading

Major retail brokers such as Fidelity offer access to international stock exchanges through special Electronic Communications Networks (ECNs), which make it seem as if traders are accessing the foreign marketplaces directly. Traders may find some slight limitations such as no margin offers, no short selling and no special orders such as limits, fills, etc. Unlike with ETF investing, traders are pretty much on their own with this option, which means that they should conduct their own research and due diligence.

Jay White

I started Dumb Little Man many years ago so great authors, writers and bloggers could share their life "hacks" and tips for success with everyone. I hope you find something you like!

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