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A Study on the Japanese ETF (Exchange Traded Funds) Market: Current Market Characteristics and its Implication

  • Asset Management Review
  • Abbr : AMR
  • 2024, 12(2), pp.37~56
  • Publisher : Institute of Management Research, SungKyunKwan University
  • Research Area : Social Science > Business Management > Finance
  • Published : December 31, 2024

Jooyoung Yun 1

1Global X Japan

Irregular Papers

ABSTRACT

An Exchange Traded Fund (ETF) is an innovative financial product that has been growing rapidly worldwide due to its transparency, low cost, and convenience. In Japan, ETFs were listed for the first time in Asia, resulting in the largest asset in the region. However, in terms of market scale and quality, growth has been slower. Recently, though, the ETF market in Japan has accelerated due to increasing investor interest, supportive financial policies, improved market systems, and the listing of a diverse range of new products. The findings of this study are as follows: First, a distinctive feature of the Japanese ETF market is the trading volume by investor type, with foreign investors accounting for more than half of the total volume. In terms of products, the asset composition of overseas equity ETFs is lower than that of the public fund market, indicating potential for future growth in overseas equity ETFs. Regarding market competition, given the number of companies managing public funds, the competitive intensity among ETF managers is considered low. Lastly, from the perspective of investor diversification, the proportion of individual investors in Japan is significantly lower than in other Asian countries. However, with the listing of diverse products and favorable system changes, such as the new NISA system, individual investor participation in ETFs is expected to gradually increase. The characteristics of Japan’s ETF market are as follows: First, the Bank of Japan has actively utilized ETFs as a monetary policy tool, holding over 80% of the total ETF market. Second, the JPX has developed a proprietary ETF quoting platform that supports the expansion of institutional investors and enhances price transparency in the ETF market. Third, ETF managers use a sponsored incentive program managed by the JPX to improve ETF quotations. Lastly, the JPX actively collects, accumulates, and shares data generated in the ETF market to manage and advance ETF market data. These efforts ultimately enhance understanding of the ETF industry and aid in the development of systematic business plans, providing a foundational infrastructure that supports the sustainable growth of the ETF industry in the long term. Considering the economic ties between Korea and Japan, the expansion of financial exchanges between the two markets, and the increasing trend of both domestic and international investors investing in Japanese ETFs, there is a need for diverse information and empirical analysis of the Japanese ETF market. Analyzing the status of the ETF market and related systems in Japan may also contribute to improving systems and markets in Korea.

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