How to Invest in Japan Stock Market: A Guide for Indians

Arihant Team

6 minutes read

03 Apr 2025

Attention of global investors has recently turned to Japan. Japanese stocks not only offer significant value and growth potential, but they also benefit from a favourable geopolitical position. If you are looking to give your portfolio a “videshi tadka” {aka international diversification} by investing in Japanese stocks you can do it through mutual fund and even open an international trading account and directly invest in Japanese stocks.

Introduction

Japan, the world's fourth-largest economy, with a GDP of approximately $4.39 trillion, stands as a global economic powerhouse with a rich history of industrial success and innovation. The backbone of Japan's economy is a highly skilled workforce, cutting-edge technology, and a business-friendly environment. Its strong intellectual property protection and commitment to research and development foster innovation, creating opportunities for long-term growth.

Japanese stocks offer a good investment opportunity as the country’s economic recovery is fuelling consumption and capital spending after spending three decades in deflationary malaise. Corporate reform has also gained significant momentum, and the Japan Inc is expected to deliver higher profitability and better valuation after a long period of stagnation. Top that up with its technological powers and leadership in the industries such as automotive, electronics and robotics, its unique mix of stability and innovation – it makes for a compelling investing story.

Opportunities in Japan appear attractive and investors with extra funds looking to add geographic diversification to their portfolios can invest in Japanese stocks.

Ways to Invest in Japan Stock Market

So, if you’re looking to gain exposure in the Japan’s stock market to diversify your portfolio and participate in the growth story of Japan, here’s how you can invest in Japan:

A) Direct Equity through International Brokers

You can invest directly in the Japanese stock market by opening an overseas trading account with an international broker accepting Indian clients. All you need is to do a KYC to open your account and you can choose the stocks of your choice.

Can’t find an international broker to open an account with? Don’t worry. A few Indian brokers also provide access to foreign stock markets, including Japan. They have partnered with global investment platforms like Interactive Brokers LLC to deliver seamless services.

One of famous global investment partner is Interactive Brokers (IBKR) which allows Indian investors to trade directly in Japan. The process of opening an account with Interactive Brokers is simple. Visit https://www.interactivebrokers.com/ click on open account and complete your KYC, using the following steps:

Step 1: Select Account Type

Choose the appropriate account type based on your needs. For personal trading, select "Individual." Other options include joint, corporate, and trust accounts, depending on your investment structure.

Step 2: Provide Personal Information

Enter basic details like your full name, email, phone number, and country (India). Create a username and password for secure account access.

Step 3: Complete the Application Form

Fill in your PAN card, Aadhaar number, date of birth, and tax residency status. Provide proof of residence, employment details, and information about your trading experience to help IBKR assess your profile.

Step 4: Select Account Preferences

Choose your base currency (USD for investing in global markets). Select the markets you wish to trade in and decide if you want a margin account for leveraged trading or a standard cash account.

Step 5: Upload Required Documents

Submit identity proof (PAN card), address proof and bank proof to verify your details. Complete KYC and provide documents for identity verification.

Step 6: Application Review & Approval

IBKR will review your submitted details and documents, typically within 1–3 business days. Once approved, you’ll receive login credentials to access your account.

Step 7: Activate & Start Trading

Fund your IBKR account and then enable trading in Toyko Stock Exchange (TSE). Use IBKR’s Trader Workstation, IBKR Global Trader, or IBKR Mobile to search for Japanese stocks and invest on them.

Important considerations for Indian investors to keep in mind while dealing with International Brokers:

Currency Exchange: Understand the currency exchange rates and associated costs.

Brokerage and Fees: Pay close attention to the brokerage fees and other charges associated with international trading.

B) Mutual Funds

Investing in the Japanese stock market through mutual funds is a great way to gain exposure to Japan’s economy without directly purchasing individual stocks. Currently, the Nippon India Japan Equity Fund is the only scheme that invests in the Japanese stock market. You can invest in this fund through the Arihant Plus mobile app. Here’s a quick overview of the Nippon India Japan Equity Fund:

AUM: ₹267.43 crore (as of 31 March 2025)

Returns: The scheme's three-year annualised returns are 6.92%

Expense ratio: 1.31%

Exit load: 1% if redeemed within one year

Challenges and Risk of Investing in Japan

Natural Disaster Risk: Japan is geographically prone to natural disasters, including earthquakes, tsunamis and volcanic eruptions. These events can cause significant disruptions to business operations and infrastructure, leading to economic losses.

Economic Stagnation and Deflation: Japan’s economy has experienced a period of stagnation over the past few decades, characterized by slow growth and reduced consumer spending. Also, the economy has struggled with deflation, which can discourage consumer spending and business investment, as the expectation of falling prices lead to delayed purchases and investments.

Demographic Challenges: The country has one of the highest proportions of elderly citizens in the world. The demographic shifts impact social welfare systems and reduce the labour force, potentially leading to a decrease in productivity and economic growth.

International Investment Limits: LRS

The Reserve Bank of India has introduced Liberalised Remittance Scheme (LRS), under which a resident Indian can invest up to US$250,000 per financial year for any permissible current or capital account transactions outside India, including investments in foreign stocks, properties, and mutual funds. This limit applies to each individual and cannot be combined with family members.

All Indian residents, apart from corporates, partnership firms, HUFs, are eligible to invest under the LRS scheme, including minors (their guardian signs Form A2).

To sum up

Investing in the Japan stock market offers unique opportunities for foreign investors but requires careful consideration. The country has a base of innovative companies working in the fields of robotics and artificial intelligence which grabs the attention of investors globally. By understanding the landscape and managing risk effectively, investors can potentially unlock the long-term growth potential of the Japanese stock market.

FAQs

Which is the largest stock exchange of Japan?

Tokyo Stock Exchange (TSE), with a market cap of ~$6.93 trillion (as of Sept 2024), is the largest stock exchange in Japan. Over 3,900 companies trade on TSE, including behemoths like Toyota, Honda, Mitsubishi, Softbank and Sony Corporation.

Can Indians invest in Japanese stocks?

Yes, Indians can invest in Japanese stocks. They can invest via mutual funds with focus on Japan stock market or directly opening a trading account with an international broker offering Japanese stocks.

How much can I invest in Japanese stocks?

Under the LRS scheme of RBI, every Indian can invest upto $250,000 in a financial year internationally that includes equity, bonds, mutual funds and property.