Japan's stagnant mutual fund industry is hunting for revitalization amid an aging, shrinking population and unmotivated retail investors who prefer to sit on cash.
If the industry's problems are not addressed, it will lead to a severe slowdown in the availability of fresh capital, according to the Japan International Asset Management Center Promotion (JIAM), an organization that is working with Japan's government on the drive to revive the sector.
"We need to upgrade our investment capabilities in Japan, otherwise … we cannot support our aging society," JIAM's representative director, Keiichi Aritomo, told CNBC. He pointed to an example: The returns from pension funds will not be sufficient to support Japan's retirees unless there's real change, he said.
A high savings rate in the country — a result of a risk averse population — is exacerbating the issue. Money is not sufficiently being put to work, leading to low returns. Pension funds are also not doing well because their assets aren't being diversified enough, according to Aritomo.
That all could compound into a big problem: If returns are insufficient, then support for the aged would have to be financed from taxes, which is an unrealistic option as it would become too much of a burden on young workers, he said.