Japan Eyes Stronger Yen, Tax Perks for Domestic Stock Investors

Japan’s ruling party sees the yen’s real value closer to 120–130 per dollar, not the current 150, according to Satsuki Katayama, a senior lawmaker from the Liberal Democratic Party (LDP). Speaking to Reuters, Katayama said this range better reflects Japan’s economic fundamentals, though she stopped short of naming a target level.

The yen’s recent drop past 150 was driven by strong U.S. economic data, optimism on trade policies, and expectations that the Bank of Japan will maintain a dovish stance. However, the weak yen has hurt consumers by driving up import prices and inflation.

To combat persistent yen weakness and capital outflows, the LDP is considering tax incentives to promote long-term domestic investment. One key proposal involves expanding the Nippon Individual Savings Account (NISA) programme, which already exempts retail investors from capital gains taxes. Katayama suggested exempting elderly investors’ long-held domestic stocks from inheritance tax if passed down to younger generations. This would encourage more household funds to stay within Japan and support the yen.

Despite NISA’s expansion in 2024, overseas high-yield stocks have dominated investment preferences, contributing to capital flight and currency pressure. The LDP aims to shift that trend by making domestic stock investment more attractive to long-term investors.

Katayama also noted that while currency interventions may trigger short-term changes, they rarely have lasting impact. Instead, structural measures like tax reforms could provide a more sustainable solution.

These proposed changes are expected to be part of the LDP’s annual policy package, set to be released around June, as policymakers seek to align the yen with Japan’s economic strength and reduce reliance on foreign assets.