• Japan saw sevenfold increase in money lost in latest quarter
  • Government to announce measures to counter scams next month

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’s 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 last year, and the latest statistics show there were 1,700 scams reported in the first three months of 2024, with an average of ¥13 million ($83,500) lost in each case.

“For the scammers, it’s no risk, high return,” said Kazuhide Saijo, the president of a Organization of Investment Scam Victims. “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 last year, combined with the government’s measures to entice people to invest in Japanese stocks has created an environment for fraud to flourish.

For Endo, who is in her early 60s, the realization that her savings were inadequate for a comfortable retirement made her look for other ways to boost her nest egg. An ad on Meta Platforms Inc.’s 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 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 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 couldn’t. The app turned out to be a fake — her money had ended up in someone’s pocket, not in stock markets.

Stock Craze

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

Still, cash savings make up more than half of household assets in Japan — far higher than 12.6% of the US and 35.5% in the euro area, according to another BoJ survey released last August. The Japanese government is trying to tap into that pool of liquidity, encouraging a shift from saving to investment by expanding the tax-exempt retirement savings accounts known as NISA.

Scammers, though, also have their eyes on the money and many Japanese people are easy prey due to their lack of financial education. Mayuko Suzuki, a professor of consumer education at 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,” Suzuki said.

In 2022, the country introduced enhanced financial education in its curriculum guidelines for high schools. It aims to teach the risk and reward of investment to help people plan their financial future.

While the number 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 last month 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 Meta’s local unit, as a growing number of online ads featuring celebrity images attempt to swindle people out of their money, former Digital Transformation Minister Takuya Hirai said in a interview last month. He has criticized Meta for being “the most non-compliant platform owner,” and said the company should suspend all Facebook ads in Japan until they finds a better way to combat fraud.

“Facebook is profiting off of advertising for scammers in Japan,” said Kokufu Taido, a lawyer representing a group of victims of investment scams suing Meta for damages totaling ¥23 million. Kokufu also pointed to the anonymity of some messaging apps that make it difficult for investigators to find criminal groups, while limited cooperation internationally also prevents recovering damages.

A representative for Meta said the firm is taking seriously information that there are victims of scams among its users.

“This has spread concerns among the people in Japan. Meta has invested over $20 billion in teams and technology to secure our platform since 2016, and we will continue to focus on combating fraudulent advertising,” the representative said, declining to comment on the ongoing cases against the company in Japan.

For Endo, none of the attempts to get her money have been successful. Instead, her plan to retire at 65 is in tatters.

Written by:  and  @Bloomberg