Why Japanese monks are turning to stocks, US treasuries and real estate

Koukyo Yoneta, a fifth-generation Buddhist priest in a small town in Hokkaido, was struggling to keep up with the maintenance needs of his century-old temple, so he chose a path that would have been unthinkable for his predecessors — rather than wait for his congregation to give money they don’t have, he invested what they’d already donated.

The move paid off. Within two years, his portfolio of US Treasuries, Japanese real estate investment trusts and stocks including BYD Co. and Hyundai Motor Co. returned more than 10% annually, helping to cover part of the roughly ¥25 million ($162,000) in needed repairs. The extra money even allowed him to expand the renovations beyond the original plan.

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Having previously worked in retail sales at Daiwa Securities Group Inc., Yoneta is an unusually finance-savvy priest but is also part of a growing wave of temple owners turning to financial markets to make ends meet. Costs for the upkeep of the ornate wooden buildings are soaring while the country’s Buddhist population has dropped about 14% in the last two decades as elderly adherents die and younger generations in larger cities lose their ties to religious practices.

“I’m just so thankful that the investments performed well,” said the 46-year-old, who inherited the Kongo-ji temple from his father in 2018 after leaving his job in finance and training as a monk. “With the funeral business shrinking, more and more temples will find they can’t just rely on donations to meet their funding needs; they will have to build up reserves and invest those funds,” said Yoneta.

The shrinking number of followers is hitting temples’ finances. About half bring in less than ¥4 million per year, according to a 2021 survey of 7,000 temples by one of the largest Buddhist groups, Jodo Shinshu Hongwanji-ha. The situation is particularly severe in rural areas, where it is common for monks to oversee multiple temples while also working day jobs like school teachers or civil servants.

Traditionally, funerals and maintaining graves have helped sustain temples as bereaved families would pay for more elaborate ceremonies and prayers. During the Covid pandemic, people began spending less on funeral rituals and the trend has continued particularly as inflation has increased households’ daily costs. Some temples that are popular with tourists charge entrance fees, but most lack other means.

The need to cover higher costs through price hikes or investments poses a moral dilemma for some monks, whose religious principles call for detachment from greed.

Daian-ji temple in Nara prefecture still holds most of its assets in cash, with around 10% now allocated to foreign-currency-denominated insurance products, which earn higher interest returns. Their investment style is “purely defensive” to avoid any conflict with the religion’s teachings, according to the deputy priest Yusho Kono.

“There is an inherent contradiction in our position,” said Kono. “In principle, monks should not engage in profit-making activities. But if we do not take any action now, the temple could cease to exist.” Production costs for some of Daian-ji’s traditional silken amulets, which visitors buy to guard against misfortune or to bring good luck, have surged in the last two years.

Shifting attitudes among priests underscore the strain that persistent inflation is placing on traditional institutions long accustomed to stable prices. Although Japan’s consumer price inflation has fallen below the central bank’s 2% target, thanks to a series of subsidies, rising prices are continuing to disrupt social and financial practices shaped by decades of deflation. Issues surrounding surging living costs are a major political issue for the Sanae Takaichi administration. Opinion polls show her approval rating hovering near its lowest level after 11 months in office, after she was seen by voters to be concentrating too much on less-pressing issues than the cost-of-living crunch.

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Temples’ limited ability to charge adherents more for services strengthens a case for asset management, according to Tsuyoshi Kawata, a senior researcher at SMBC Nikko Securities Inc.’s corporate investment strategies department, who published a study on asset management by religious organizations in 2023.

”When the overall market is shrinking, raising prices is not really an easy option,” said Kawata. “Leaving cash sitting idle is probably no longer an option either. They would want to use whatever means they can to increase income, even if only slightly.”

For some temples, returning to financial markets also means overcoming painful lessons from the past. In 2013, the Koyasan Shingon-shu sect was embroiled in a financial ordeal after reporting unrealized losses from its exposure to structured bonds. The sect declined an interview request, saying they are considering revising their asset management strategy.

Even so, rising bond yields following the end of negative interest rates offer comfortable investment opportunities for risk-averse monks. Soto-shu, a Buddhist sect overseeing around 15,000 temples nationwide, has been taking advantage of higher yields. Of the ¥13 billion it manages across eight accounts, around 10% is now invested in Japanese government bonds that it plans to hold to maturity, while another 2% is invested in debt issued by the Japan International Cooperation Agency (JICA) to finance development in emerging economies.

Religious groups, schools and other nonprofit organizations are collectively becoming a buying force of fixed income products. NPOs, including schools and religious institutions, held roughly ¥5 trillion of corporate bonds as of March, about double the amount in 2023, according to Bank of Japan figures. Holdings of Japanese government bonds also increased to ¥2.9 trillion from ¥2.5 trillion over the same period.

Back at Kongo-ji temple in Hokkaido, priest Yoneta hopes his investments will help fund future repairs as revenue continues to decline. At the same time, he is trying to safeguard the future by regularly hosting investment seminars for adherents at the temple, building a support network that the temple might one day be able to rely upon.

“The days when temples and their priests enjoyed a privileged status are completely over,” said Yoneta. “How temples plan their finances and manage their assets is becoming an issue we simply cannot afford to ignore.”