The Spread of People's Capitalism

THE Japanese save more of their income than any other people on the planet. But the Tokyo Stock Exchange (TSE) has one of the lowest rates of individual-investor participation of major stock markets anywhere. So where do the savings-oriented investors keep their money?

"In the bank," says Kathy Matsui, a strategist for Goldman, Sachs & Co. in Tokyo.

Indeed, Japanese people have a lot of money stashed away: In 1993, according to statistics from the Bank of Japan, they had personal assets of almost 1,075 trillion yen ($12.8 trillion). Three quarters of it went into savings accounts - mostly certificates of deposit (CDs) - and to insurance companies. The Japanese invested a little less than 10 percent of their assets in the stock market and mutual funds.

Mutual funds, known here as investment trusts, have never really caught on. Many are managed by subsidiaries of Japan's big brokerage houses, which have been accused of making the funds buy stock the brokerages can't sell on the market. Analysts also say the funds do not attract the best money managers. "There has been a decline in confidence in investment trusts," reports a TSE researcher.

Brokerage houses have been having a hard time themselves. All but one of Japan's top 14 houses reported losses in the fiscal year that ended in March. They cite as reasons declines in trading volumes, fewer public offerings of stock, and a weak economy. In June, the TSE benchmark Nikkei index sagged to within a few hundred points of its Aug. 18, 1992 recession low of 14,309.41. A year ago, the index stood above 21,000.

Individual-investor participation in the market has dropped dramatically in recent decades, as it has in other industrialized nations as well. In 1949, individuals owned 70 percent of the Tokyo exchange's shares; now the figure is just under 24 percent.

But individuals looking for returns they can't get in CDs have been coming to the market with a little more enthusiasm in recent months, as the central bank has brought interest rates down to historic lows. In general, though, small investors will continue to shun the market, analysts say. Japan's four-year-old recession has not left ordinary people with extra cash.

"Unless the Japanese economy gets well," the TSE researcher says, "people cannot afford to spend money on investments."