Trading Japanese Stocks for US Residents

There are several ways in which US residents can buy Japanese stocks, i.e., buying the underlying shares through selected full-service and online brokers, buying US depository receipts (ADRs), or buying an ETF or a mutual fund that invests in Japanese stocks.

1. Full service brokers such as Merrill Lynch can execute trades in Japanese stocks, for a full commission of course. Some online brokers such as E*Trade and and Charles Swab allow investors to purchase foreign stocks. In order to use these services, however, investors are required to call them to place the orders. Commission fees are also higher than for online trades. E*Trade's master plan is to have dealing operations in markets around the world and to interlink them. According to media reports, the roll-out of this global service has already begun. Other brokers such as InteractiveBrokers.com (US) and Saxo Bank.com (Denmark) claim to be able to trade foreign securities, but TJI does not have rankings for these brokers.
2. US residents can buy American Depository Receipts (ADRs) of Japanese stocks registered in the US and either traded on the New York Stock Exchange or over the counter. Standard & Poor's ADR Index is composed of Japanese ADRs and ADRs of other international companies, and the brochure available at the above link describes the different types of ADRs issued by international companies in the US. JP Morgan, a major sponsor of ADRs, has a site (ADR.com) specifically dedicated to ADRs that also has information on earnings and other financial fundamentals for companies that issue ADRs. (*please refer to the Japanese Stocks Listed on the New York Stock Exchange table that follows). ADRs settle just like US securities and are denominated in dollars. Keep in mind however that fluctuations in the home currency of such stocks (such as the Japanese Yen) is factored into the US-dollar price quote.
3. There are many ETF (exchange-traded funds) and mutual funds that invest in Japanese stocks that are registered in the US. These funds are tracked and ranked by mutual fund research companies such as Morningstar, and most of them can be traded just like any other mutual fund through online brokers (*please refer to the ETFs and Mutual Funds that Invest in Japanese Stocks table that follows).

Japanese Stocks Listed on the New York Stock Exchange

Note: While there are over 140 Japanese securities registered in the US as ADRs, Japanese ADR stocks other than the above are traded over-the-counter, are often illiquid, and broker fees can be high. For more information on Japan ADRs, please visit ADR.com or the Bank of New York’s ADR site.

ETFs and Mutual Funds that Invest in Japanese Stocks

Note: The above are just a sampling of the Japan stock funds available. The better performing of the Japan stock funds can be screened at the Yahoo Mutual Funds Center.