Investing for Americans in Japan: A Step-by-Step Guide to Building Wealth Across Borders
Updated June 30, 2025
For Americans living in Japan, investing can seem like navigating a financial maze. From understanding the complexities of Passive Foreign Investment Companies (PFICs)—a classification that comes with punitive taxes to discourage passive investments in foreign entities and funds—to deciding where to save and invest, the process can be challenging but rewarding. This guide will break down the steps to help you build wealth while ensuring compliance with both U.S. and Japanese financial systems.
Step 1: Save More Than You Spend
Before investing, you need to master saving. If you aren’t saving money yet, implement one or more of these strategies:
Budgeting:
Track Your Spending: Monitor your expenses for at least 30 days to identify areas where you can cut back. Continue tracking until you have spending under control.
Pay Yourself First: Open two bank accounts and deposit your planned savings into a separate account as soon as your paycheck arrives. Spend only what remains in the primary account. This approach requires a general understanding of your monthly expenses.
Earn More Money:
Take on part-time work or start a side hustle.
Use tools like ChatGPT for business advice and growth strategies.
If applicable, consider upskilling or pursuing education to increase your income, but evaluate the return on investment (ROI) to avoid unnecessary debt or delays in retirement.
Step 2: Save a Small Emergency Fund
Ensure you have at least ¥100,000 saved for small emergencies before moving forward. This safety net prevents unexpected expenses from derailing your progress.
Step 3: Pay Off High-Interest Debt
Focus on eliminating debt with interest rates higher than 6%. While investments may offer higher returns, paying off high-interest debt is a guaranteed way to improve your financial situation.
Step 4: Decide Where to Hold Your Money
As an American living in Japan, you’ll need to decide whether to keep your assets in Japan, the U.S., or both. Each option has pros and cons.
In Japan, your money is accessible in the local currency and aligned with your lifestyle. In the U.S., you have access to low-cost, globally diversified investments and potentially better long-term returns in dollars. Holding assets in both countries gives you flexibility in retirement, can help with currency diversification, and may even offer a layer of asset protection.
📌 For a deeper look at this strategy, check out my blog: Why I Love Having Assets in Both the U.S. and Japan.
To maintain U.S. brokerage accounts, you’ll typically need a valid U.S. mailing address. Some people continue using a family member’s home, while others rely on virtual mailboxes. Just be aware that using a virtual mailbox may eventually violate brokerage terms of service if not handled carefully.
📌 I explore this issue more in What Happens to My U.S. Brokerage Account If I Lose My U.S. Address?
As an American, you need to decide whether to keep your assets in Japan, the U.S., or both. Each option has pros and cons:
In Japan: Provides easy access to local currency and aligns with residency.
In the U.S.: Keeping assets in the U.S. can allow you to collateralize loans for purposes like real estate or business investments. Additionally, it enables you to earn returns in dollars, which currently hold more purchasing power compared to the yen.
Holding assets in both locations allows you in retirement to live for extended periods of time in both countries and may provide a form of asset protection as it is difficult for lawsuits to claim assets in a country where they didn't originate.
To maintain U.S. bank and brokerage accounts, you’ll generally need a U.S. address. Options include:
Keeping a U.S. driver’s license and paying bills at that address.
Using virtual mailboxes (note: many institutions require a physical address).
This is a grey area, so consult a financial professional to ensure compliance.
Step 5: Build a Full Emergency Fund
Aim to save 3-6 months of living expenses. For business owners or those with variable income, 12 months may be safer.
In Japan: Save in a standard bank account for easy access during emergencies.
In the U.S.: Use a high-yield savings account (e.g., Ally Bank currently offers 4.2% APY).
Step 6: Invest in Equities and Bonds
Now that your emergency fund is in place, it’s time to invest. But keep in mind—what follows is not an “order of operations”. These are options. Pick and choose the ones that fit your situation and goals. Your ideal mix will depend on your income level, tax residency, and long-term plan.
1. Leverage Your Japanese Spouse’s NISA and iDeCo Accounts
If your spouse is a Japanese citizen and not a U.S. taxpayer, you can gift up to ¥1.1 million per year to them without triggering Japanese gift tax. This money can be invested into their NISA or iDeCo account—two of Japan’s best tax-advantaged vehicles. Since they aren’t U.S. persons, PFIC rules don’t apply to them, making these accounts a powerful tool for your household’s overall investment strategy.
2. Use a DC Plan and iDeCo Together (or iDeCo Alone if No DC Plan Is Offered)
If your employer offers a corporate DC (Defined Contribution) pension plan, take full advantage of it. These plans are tax-advantaged in Japan and generally considered “pensions” by the IRS, which means they are likely exempt from PFIC reporting under IRS Regulation 1.1298-1(c)(4). You’ll still need to report the account on your FBAR and possibly Form 8938, but it’s one of the safest long-term investment options available to Americans working in Japan.
Starting in December 2024, a new rule allows employees to contribute to both a DC Plan and an iDeCo account—as long as your combined contribution doesn’t exceed ¥62,000 per month. For example, if your company contributes ¥45,750 per month to your DC Plan, you can still contribute up to ¥16,250 per month to an iDeCo account.
If your company does not offer a DC Plan, you can contribute the full amount allowed under iDeCo rules (typically ¥23,000/month for company employees).
While not universally accepted, many CPAs who specialize in U.S. expats in Japan believe that iDeCo also qualifies for PFIC exemption under the pension rules. Still, you should confirm with your own tax advisor before proceeding.
3. Use Growth NISA with Individual Japanese Stocks (PFIC-Free)
Most Japanese investment funds and ETFs are PFICs, which carry heavy reporting and punitive taxation under U.S. law. However, individual Japanese stocks are not PFICs. That means you can use the Growth NISA (the only portion accessible to U.S. persons) to invest in single stocks like Toyota, Sony, or Nintendo.
This strategy only makes sense if:
You stick to individual stocks, not funds
You’re confident holding these long-term
The NISA allocation is a small part of your overall portfolio (e.g., you invest ¥20 million+ annually and want to use NISA as a small tax-advantaged carve-out)
4. Contribute to U.S. Retirement Accounts Only If You Have Taxable U.S. Income
You can only contribute to a Roth or Traditional IRA if you have U.S.-source earned income that is not excluded under the Foreign Earned Income Exclusion (FEIE). Japanese salary under the FEIE doesn’t count.
You may be eligible if:
Your Japanese income exceeds the FEIE limit (about $126,500 in 2024)
You earn side income from a U.S. LLC or self-employment
But even then, Roth IRAs are not recognized as tax-free in Japan. Any gains may be taxed annually by Japan, making their long-term benefit questionable unless you plan to retire in the U.S.
5. Open a Taxable Brokerage Account
The best way to invest for long-term growth is often through a U.S. brokerage account that allows you to buy U.S.-domiciled ETFs like VTI, VXUS, and BND. These avoid PFIC rules and offer global diversification at low cost.
You have two options:
Option 1: Use a U.S. brokerage like Fidelity or Vanguard with a U.S. address.
This works well if you maintain a permanent mailing address and phone number in the U.S., but it’s a gray area, and your account may be restricted if the brokerage learns you’re abroad.
Option 2: Use a Schwab International account with your Japanese address.
Charles Schwab offers a dedicated international account for U.S. citizens living abroad. You can apply using your Japanese address, buy U.S. ETFs with no commissions, and stay fully compliant. You’ll need to provide proof of address, your U.S. passport, and a completed W-9 form.
If you already have a domestic Schwab account, contact Schwab International before changing your address—they may be able to migrate your account without closing it.
6. Recommended Portfolio
If you’re just getting started, one of the simplest and most effective ways to invest is with a three-fund portfolio. It offers broad diversification, low fees, and long-term growth across the global economy. With just three ETFs, you get exposure to:
U.S. stocks
International stocks
U.S. bonds
Here’s a sample breakdown and ETF options from Vanguard and Schwab:
You can adjust the percentages to match your personal goals, but a common starting point is:
50% U.S. stocks
25% international stocks
25% bonds
This portfolio is easy to automate, rebalance, and hold for the long term. Once you’ve set it up through Schwab or another U.S. brokerage, you can focus on staying the course.
📌 For a full breakdown of how I personally invest, check out What’s in the FI Professor’s Portfolio?
Step 7: Explore Real Estate and Business Opportunities
If retirement accounts aren’t accessible due to the FEIE, real estate and small business income can offer a powerful path forward.
In the U.S., buying rental properties gives you access to leverage and U.S.-sourced income that isn’t affected by FEIE limits. Business income from an LLC or freelance work may also count as earned income for IRA contributions—assuming it’s properly sourced and taxed in the U.S.
These options require more planning, but they’re excellent ways to grow wealth while living abroad.Final Thoughts
Investing as an American in Japan requires strategic planning and adherence to both countries' financial rules. By following these steps and consulting professionals, you can build a robust portfolio that aligns with your lifestyle and retirement goals.
Final Thoughts
Investing as an American in Japan takes thought and intentionality, but it’s absolutely doable. Avoiding PFICs and understanding cross-border tax rules are key. By combining Japanese pension accounts, U.S.-based brokerage platforms, and clear strategies like gifting to your spouse or using Schwab International, you can build a flexible and efficient investment plan.
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Disclaimer
This article is for educational purposes only and does not constitute financial or legal advice. Please consult a certified financial planner or tax professional before making investment decisions, especially concerning U.S. residency requirements, PFIC reporting, and cross-border retirement contributions. Always conduct thorough due diligence.
