With a population of 122 million, Japan is the fourth largest economy in the world. It’s also home to the fourth largest population of UHNWIs worldwide - over 22,000 UHNWIs that hold combined wealth of over $2 trillion.

Yet there’s almost no tangible family office industry.

Family offices with a public presence are rare: Yamauchi No.10 from the Nintendo founding family is the most renowned, if mostly for their quirky website, and there’s also MA Platform, from the founder of Mori Trust Group. 

Curious after a recent trip to Japan, we reached out to family office professionals and companies to ascertain what ecosystem was in place.

One single family office head in Tokyo summed it bluntly: “There is no ecosystem here.” 

Like other major jurisdictions with minimal structures in place, the big multinational consulting firms are prominent, and there is growth in private wealth managers offering family office services, like PrivateBank and Monolith RIA. 

For such a wealthy country, it’s confounding, yet an accurate reflection of the cultural differences that make Japan so unique - something anyone quickly learns when they visit.

Flaunting wealth isn’t a consideration, even for the most public of billionaires. An example is Masayoshi Son, who despite being the wealthiest man in Japan still went through multiple efforts to hide his involvement in the purchase and costly development of his Tokyo mansion. (Side note: we’ve recommended the book Gambling Man before, a good summer read)

Discretion and privacy, standard family office practices globally, are just part of the national psyche in Japan. Almost everyone we spoke to that worked directly with wealthy Japanese families politely refused to comment on record. 

More than just privacy

Another element in Japan is long-term dedication: how individuals that acquire wealth have usually devoted themselves to a single company from the start of their career.

One investment professional who’s spent over 30 years working for or with Japanese companies shared some insight on this. Anonymously, of course.

“One of many cliches of Japan in the West that is rooted in reality is the Japanese tendency to identify with the group. As it pertains to Japanese families at one level, it means that financially successful Japanese usually start their career with one company and almost always stay with that company until retirement.” 

He shared something repeated by several sources, how employees - even management - are often generalists, hired for attributes and rarely for experience.

“Individuals are expected to dedicate themselves to the company and to master any role required of them in a short time.” 

Loyalty isn’t just between employees and companies. Most long-established companies are connected to the three large trust banks (SuMiTrust, Mitsubishi UFJ Trust, Mizuho Trust) that control over 95% of the market. There is also extreme loyalty here too.

“Changing banks is about as likely as a Japanese individual quitting a company: it happens but it is rare.”

When it comes to dedicated entities to manage family wealth, he noted most operate within a family operating business, not as separate entities, though many will have a single representative working from an office in Tokyo or in the US to explore opportunities. 

This structure was echoed by Gabriel Colominas who manages the Japan Deep Value Fund at GESIURIS. 

“Family-office functions exist but are fragmented - the family may have an asset-holding company, a tax accountant, a trust bank and someone inside the operating company managing personal matters, but not a institutionalize family office.”

He adds that: “Japan has been very good at preserving companies across generations, but not at managing the family separately from the company.”

Kasan 家産

Colominas also highlighted the concept of kasan, which he says means something close to family patrimony, but also relates to how in Japan, the company comes first. 

“The idea is that the company and the family assets belong to the family across generations, not only to the person currently controlling them. The current chairman has the responsibility to preserve them and pass them to the next generation.”

“In the Western family-office model, the company is an asset owned by the family. Under the kasan idea, the family is more like the temporary custodian of the company.”

Such a culture creates some unusual situations, and he’s personally been privy to some odd activity.

“I have seen retiring chairmen sell their shares back to the company at a discount, even when the shares were already extremely cheap.

“From a financial point of view, it makes no sense. But their view is that they are retiring and are no longer entitled to keep the shares connected to their position. They see themselves more as temporary custodians of the company than as owners free to maximize their personal wealth.”

Activity like this or the handover of large shareholdings to foundations, which he also sees, is what he says “can create very long-term companies, but it can also lead to poor capital allocation, excess cash and too little focus on outside shareholders.”

Welcome to taxation station

Japan is also a hard place to build lasting family wealth because of tax. Inheritance tax tops out at 55%, so there is no incentive to remove this wealth from an operating company.

As Colominas notes, holding companies don’t solve this either: “Creating a family office does not eliminate inheritance tax. If you transfer the assets to a family holding company, the heirs inherit the shares of that company, which are still taxable at rates that could reach 55%.” 

Add to this a top income tax of near 55% and you've got a system designed to shrink fortunes, not preserve them.

There also no easy way out. Since 2015, anyone leaving with significant wealth faces an "exit tax" of roughly 20%. And a Japanese national can't just relocate to avoid this, since these rules can follow them and their heirs for up to a decade after they've gone.

A lack of successors

Another point of interest when it comes to Japan is that 62% of Japanese companies have no succession plan in place. 

Surely something that a more structured family office approach could solve? 

“For some larger family businesses, absolutely,” says Colominas. “A family office could separate ownership from management, prepare the next generation as shareholders, appoint a professional CEO and organize inheritance and voting rights.”

“But it would not solve the whole problem. Many of these companies are very small, and the main issue is that the children do not want to run the business, the founder has not built a management team, or the company is in a declining industry or region.”

Ultimately, Japan is a unique country with its own approach to managing wealth, one that doesn’t fit the narrative we’re used to in the West. 

It will be interesting to see though how the next generation of Japanese combined with the influence of increasing foreign investment affects the current family wealth ecosystem - or lack of it.

Don’t expect Japan to be competing as a regional family office hub with Singapore or Hong Kong anytime soon though.