On July 27, the Asahi Shimbun reported that the Bank of Japan had overestimated the value of mutual funds being held by individuals by about 30 percent. Every three months the BOJ publishes statistics called shikin junkan tōkei that cover the financial assets of households and businesses, and as of December 2017 the value of mutual funds held by households was estimated to be ¥109 trillion. However, in the report that came out in June, this number had dropped to ¥76 trillion, a difference of ¥33 trillion. That’s a pretty big discrepancy.

The BOJ said the change was not due to a “mistake,” but rather was “part of the work of revising” the statistics. According to the Asahi, the securities industry was dismayed by the news, since they had thought that the number of people buying mutual funds had been going up steadily since 2011, but really it has been dropping since 2015. Prior to the correction in June, it was believed that investment trusts accounted for 5.8 percent of individual asset holdings in Japan, but it turns out it is only 4.1 percent.

The chairman of the Investment Trusts Association told the newspaper that the revision was particularly disconcerting because of the importance of getting people to “create their own (investment) portfolios,” while the head of the Japan Securities Dealers Association said that securities companies use the BOJ statistics to explain and sell their products, and if those numbers are wrong they will lose the public’s trust.

In fact, the Investment Trusts Association’s own estimate is that the value of mutual funds held by individuals since 2014 has been about ¥65 trillion, which is even less than the revised BOJ number.

By itself the news was depressing to the consumer finance industry, but coming as it did less than a month after the Financial Services Agency found that about half the people who owned mutual funds through banks had lost value in their investments, the news was particularly disconcerting.

According to another Asahi article, published July 5, the FSA had investigated nine major banks and 20 regional banks with regard to sales of mutual funds. They compared the price of the funds when the customers bought them to their value as of March 2018 and found that 46 percent had lost value. Most of these funds hold Japanese stocks, and as the Asahi pointed out, Japanese stocks have been “in an upward trend” recently, so, relatively speaking, it would be “difficult to lose” money on such an investment.

The FSA found that the banks with better results, meaning a higher percentage of customers who made money on mutual funds, were those where customers kept their funds for longer periods. Banks where customers kept their funds for shorter periods tended to have worse returns.

This is elementary investment logic. Mutual funds are collections of securities that are bought with pooled money from investors. Usually they are made up of stocks, but they can also be bonds and other financial instruments, the idea being that the greater the diversity of the fund, the more the risk is spread around. However, mutual funds do tend to follow the ups-and-downs of stock markets and other financial indicators, so the value of a particular fund will fluctuate over time, sometimes greatly.

But it’s the conventional wisdom of consumer financial advisers that for long-term investors, which presumably includes people who buy securities for retirement purposes, it’s best to hold on to funds for as long as possible because in the long run they almost always go up in value. Besides, funds are being managed by experts who buy and sell individual stocks contained within the portfolio. That’s what the fees are for, and in Japan the fees tend to be high because there are so many layers between fund managers and investors.

The problem uncovered by the FSA seems to be related to the fact that these people were buying their mutual funds through banks, which have been able to sell securities since deregulation in the late 1990s. Banks do not control these funds — they are simply sales agents, and they charge their own fees whenever a transaction takes place.

Given that Japanese banks no longer make much money on their traditional business — lending money — fees are their main source of income when it comes to retail banking. So they encourage people to buy and sell mutual funds — or, at least, they don’t discourage customers from doing so, as a financial adviser might — a practice called kaiten baibai.

The bank makes money on each deal, but the customer, who might sell a fund when the stock market hits the skids temporarily, ends up losing money in both the short- and long-term. Consequently, the FSA concluded that banks are not “working for the benefit of customers” but rather only for themselves, and are calling on financial institutions to be more transparent about the long-term investment benefits of mutual funds.

Such institutional neglect is frustrating to the government, which has tried desperately to get Japanese people to invest their cash. The Japanese public notoriously hoards a lot of money, either in near-zero interest savings accounts — half of Japan’s household assets are in bank accounts, compared to only 13 percent in the U.S. — or as cash stashed in the wardrobe at home. Consequently, they have a risk-averse mindset; they see securities as being inherently dangerous, because, unlike insured accounts, there are no guarantees that the money invested will be returned to them.

The problem with these recent news stories about mutual funds is that they reinforce this view. Indeed, mutual funds are not airtight, but there are so many types and so many levels of risk that there is sure to be something for anyone who wants to grow their nest egg.

The allergy toward stocks and mutual funds is also behind the government’s disappointment with the performance of Nippon Individual Savings Accounts, or NISA, a scheme begun in 2014 to attract individual investors by exempting such accounts from the 20 percent tax levied on all returns from investments, including capital gains and dividends. The tax exemption is effective for 10 years from the opening of the account and up to a cumulative investment of ¥5 million. The idea is to get more people, ideally young Japanese looking to start nest eggs, to invest their money rather than sock it away in a bank.

According to the FSA, as of March 2018 there was ¥13.9 trillion invested in NISA accounts, 58.6 percent of which is in mutual funds. Though only five years old, NISA has not performed as well as the government hoped, which is why they’ve augmented the original scheme with others to attract more young investors.

As it stands, about 70 percent of NISA account holders are over 50, probably because the closer people get to retirement, the more worried they are about their financial security. Though most people that age own their own homes, unlike in other developed countries homes are not reliable assets since they lose value in Japan rather rapidly. Boomers buy stocks and investment trusts because they know they can’t sell their homes for a profit and live off their national pension.

This means, however, that they started their investment activities late and thus aren’t going to receive as high a return on their initial investment as they would have had they started earlier in their lives. In a 2016 survey of 8,600 people aged 60 to 65 conducted by the Fidelity Retirement Investment Education Research Center, 30 percent of respondents said they invested their severance packages in mutual funds. Of these, more than 40 percent said they did so because they realized they could not make “income” off their savings if they left it in a bank.

One-quarter of these people were first-time investors, and 70 percent bought investment trusts within six months of retiring. Also, a “high portion” said they regretted not setting up portfolios when they were younger.

These boomers, of course, still have money to spend, but it’s not certain how younger members of the current workforce will do when they reach retirement. They must start thinking now about saving for their old age, but it doesn’t sound as if they are getting much help from the banking industry.

Yen for Living covers issues related to making, spending and saving money in Japan.