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Illustration by Dorothy Gambrell Illustration by Dorothy Gambrell

Until she took a back-office job at her brokerage in July, Kayoko Okamoto knocked on 100 doors a day trying to persuade residents in some of Tokyo’s most well-to-do neighborhoods to sign up for free brokerage accounts. The former saleswoman for Aizawa Securities says she was lucky if she found 10 people a month willing to take a chance. With the Nikkei stock average down 76 percent from its 1989 peak and 1.5 quadrillion yen ($18 trillion) in wealth erased when an asset bubble burst, a generation of Japanese investors has grown up convinced that stocks only go down. “My job was putting up with rejection,” says Okamoto. “Most people have no tolerance for risk.”

The stock market isn’t the only place where the Japanese don’t like to take chances. The country suffers from a play-it-safe mentality that’s become ever-present in daily life, according to Harvard University sociologist Mary Brinton. “There’s a tendency to focus more on potential downsides rather than on opportunities,” says Brinton, co-author of A Japan That Turns Its Back on Risk, a book published in 2010. That may explain why regulators held up vaccines approved decades earlier in other countries, why few Japanese students choose to study abroad, and why 844 trillion yen, almost twice the country’s yearly economic output, sits idle in cash at home and in savings accounts earning 0.02 percent.

Even in the sporting world, Japanese tend to avoid risk: Rather than swing for the fences, professional baseball teams in Japan bunt twice as often as Major League Baseball teams in North America, sacrificing a runner in order to increase the chances of a safe score, according to a 2005 study by Ken Oikawa, a professor of kinesiology at Tokyo Gakugei University.

The stock market isn’t the only place Japanese are cautious Photograph by zonjineko.com

About 73 percent of Japanese describe themselves as risk-averse, according to a 2008 study of 51 countries by Stockholm-based World Values Survey. Ghana, Indonesia, and India had the highest rate of respondents who said taking risks is important. According to the Global Entrepreneurship Monitor, fewer than 4 percent of working-age Japanese intend to start a business within three years. That’s the third-lowest rate among 54 countries surveyed last year, behind only the United Arab Emirates and Russia (the U.S. is 19th). Although Japan’s population of 127 million is less than half that of the U.S., Japanese spend nearly as much as Americans on life insurance: Total expenditure on policies in Japan last year was $525 billion, second only to the U.S. at $538 billion, according to a study by Swiss Re ( SR9:GR).

A culture of conservatism also may be part of the reason polls show voters are likely to return the Liberal Democratic Party to power in national elections on Dec. 16. The LDP governed for more than a half-century after World War II and presided over the so-called Lost Decade of the 1990s and the early 2000s, when economic growth averaged just 1.2 percent and public debt rose to more than 170 percent of gross domestic product. The front-runner to become Japan’s new prime minister is LDP leader Shinzo Abe, who served an undistinguished term in that office in 2006 and 2007. “There’s a hunker-down mentality and a feeling that the LDP guys have been there through thick and thin and have the experience,’’ says Jeff Kingston, professor of Japanese politics at Temple University’s Tokyo campus.

Of course, there are good reasons the Japanese have been cautious about investing. “Looking back at the past two decades, it was absolutely the right decision to stay away from stocks,” says Soichiro Monji, who helps oversee 5 trillion yen as chief strategist at Tokyo-based Daiwa SB Investments. “We’ve had a few rallies, but they’ve all been temporary.”

Corporate scandals have reinforced the doubts of non-investors. Nomura Holdings Chief Executive Officer Kenichi Watanabe resigned in July over insider trading at Japan’s biggest brokerage. That followed revelations of a $1.6 billion accounting fraud at camera maker Olympus. Its shares have dropped 45 percent since. “My parents taught me: ‘Don’t gamble and stay out of the stock market,’ ” says Toshiya Enomoto, an engineer who keeps his money in a bank account. “The whole business seems unsavory.”

The breakdown of the lifetime employment system may be the main source of anxiety that leads people to play it safe, say Harvard’s Brinton and her co-author, Toshio Yamagishi, a professor at Tamagawa University. There’s still a prejudice against hiring people mid-career, and with companies firing workers and making fewer long-term commitments to employees, second chances are hard to come by. “There’s a sense that if you screw up, it’s kind of over,” Brinton says. “Once you get pushed out of a group, you don’t get back in.”

There’s already a case to be made for Japanese stocks. The country has the lowest taxes on dividends among developed nations and a 10 percent capital-gains tax, which compares well with 15 percent in the U.S. and 28 percent in Britain. Shares of companies in the Topix Index, a broader measure of stocks than the Nikkei, trade for less than the value of their assets. Still, only 6 percent of Japan’s household assets are in stocks, compared with 33 percent in the U.S. and 15 percent in Europe, according to the Bank of Japan. Overseas investors now hold 25 percent of Japan’s shares, compared with 5 percent at the height of the bubble in 1989, data from the Tokyo Stock Exchange show. To lure Japanese back to the stock market, the Financial Services Agency, Japan’s banking regulator, has proposed that Japanese who invest pay no dividend or capital-gains taxes on their first 1 million yen of stock purchases.

For Japan’s retirees, who will live to be 84 years old on average, avoiding stocks has had a big downside. Data from the government statistics bureau show the average household headed by a person in his sixties has 21 million yen in savings and investments, less than half the 54 million yen needed, according to calculations based on estimates from the Japan Institute of Life Insurance. “I’m worried my money will run out before I die,” says Tsuyoshi Kiuchi, a former Tokyo Gas employee who has seen his assets shrink after putting most of his retirement package into a bank account 12 years ago. “I’m frustrated with getting zero interest on my savings, but I was too scared to risk losing the principal.”