Had a nice question about the difference between investing in a NISA account and a J401k (拠出年金) account the other day. Here are my thoughts.
First of all, the similarities. Both accounts are designed to encourage you to save and invest by reducing or eliminating your taxes.
Second, the complexity. J401k accounts are much simpler to maintain. Once you open an account and decide your investments, you can then ignore it for several decades. NISA accounts are more involved, as you an annual allowance to invest and the accounts have shorter duration.
The purpose. NISA accounts are aimed at getting more people investing in the stock market (this hasn't really worked so far, as most people using NISA accounts were already investing in the stock market) while J401k accounts are designed to provide or supplement retirement benefits.
The duration. J401k accounts cannot be accessed (except in limited circumstances) until you reach 60 years of age. NISA accounts can be accessed any time but currently have a 5 year limit.
Eligibility. Any resident of Japan over the age of 20 can open a NISA account (younger residents can have a junior NISA account opened for them from April 2016). J401k accounts are mainly aimed at self-employed people or normal employees who are contributing fully into the national pension scheme and are not civil servants.
The benefits. J401k accounts are extremely beneficial. Contributions to the account are made from pre-tax income, so if you pay in you will reduce your income and resident taxes. Capital gains are tax-free until you cash out, when the proceeds are subject to the same tax that retirement bonuses are. In a NISA account, capital gains and dividends are tax free.
The drawbacks. J401k accounts have limited eligibility and you cannot get the money until you are 60. NISA accounts only last 5 years at the moment, and you can lose out if you make a capital loss on an investment which then recovers after the five year period ends.
In conclusion, if you are eligible and plan to live in Japan until you are 60, you should probably open a J401k account and contribute the maximum amount each month (68,000 yen for a self-employed person, 23,000 for a normal employee). If you have extra money that you don't need in the short- to medium-term that you want to invest a NISA account may be appropriate.
For a lot of people, both accounts are going to be a good fit.