Japan’s inexperienced investors fall for scams ‘like babies’

TOKYO – As Japan’s stock market booms, something else is also on the rise in the nation: investment scams.

Criminals have been quick to exploit the paradigm shift that has seen a relatively financially inexperienced population turn to investing, spurred by rising consumer prices and government encouragement to find higher returns for their savings.

In the first quarter, Japan saw a sevenfold increase in money lost to investment scams from a year earlier, according to the National Police Agency. The agency began tracking the data in January 2023, and the latest statistics show there were 1,700 scams reported in the first three months of 2024, with an average of 13 million yen (S$112,000) lost in each case.

“For the scammers, it’s no risk, high return,” said Organisation of Investment Scam Victims president Kazuhide Saijo. “Japan has only taught people to work hard and save money. In terms of investment, people are like babies.”

While investment scams have proliferated around the world in recent years, Japan had been comparatively unscathed, protected by a deflationary environment that led consumers to simply hoard cash. But the return of inflation, which hit a four-decade high in 2023, combined with the government’s measures to entice people to invest in Japanese stocks, has created an environment for fraud to flourish.

For Ms Endo, who is in her early 60s, the realisation that her savings were inadequate for a comfortable retirement made her look for other ways to boost her nest egg. An ad on Facebook for free investment seminars caught her attention last summer, so she clicked on it and was invited to join a group on the social media platform. Slowly, she was won over, and little by little, she began investing on an app that the group sent her.

Then the pressure increased. In a classic scam tactic, she was constantly encouraged to invest more for a bigger return and ended up borrowing money. In total, she invested 20 million yen, stopping when her trading app showed a 100 million yen balance.

The civil servant was initially able to take out small amounts from the trading account, but in December, when she tried to withdraw the balance of her account, she discovered she could not. The app turned out to be a fake – her money had ended up in someone’s pocket, not in stock markets.

Stock craze

Ms Endo is far from alone in having a sudden interest in investing. Japanese households have rapidly increased their stock investments, which rose an annual 29.2 per cent in December 2023 compared with a 1 per cent increase in cash savings, according to a Bank of Japan (BOJ) survey released in March.

Still, cash savings make up more than half of household assets in Japan – far higher than 12.6 per cent in the United States and 35.5 per cent in the euro area, according to a BOJ survey released in August 2023. The Japanese government is trying to tap that pool of liquidity, encouraging a shift from saving to investment by expanding the tax-exempt retirement savings account known as the Nippon Individual Savings Account.

Scammers, though, also have their eyes on the money, and many Japanese people are easy prey due to their lack of financial education. Consumer education professor Mayuko Suzuki of Osaka Kyoiku University said Japanese schools have traditionally taught little about building wealth or investing, focusing instead on saving and spending.

“If people understood the principle that no stock guarantees you continuous returns, maybe they wouldn’t get scammed so much,” Prof Suzuki said.

While the number of investment scams in Japan is still a fraction of what other countries are experiencing, their sudden appearance has made the top levels of government pay attention. Prime Minister Fumio Kishida in April said measures will be announced in June to counter the rise of the scams, with an emphasis on arresting criminals.

The country’s lawmakers are demanding a swifter response from the local unit of Meta, which owns Facebook. Former digital transformation minister Takuya Hirai has criticised Meta for being “the most non-compliant platform owner”, and said the company should suspend all Facebook ads in Japan until it finds a better way to combat fraud.