Japanese Investors Shifted Toward Foreign Equities in August

Japanese investors made their strongest shift toward overseas equities in five months in August, putting 1.3 trillion yen ($8.45 billion) into foreign shares while reducing their bond holdings. Ministry of Finance data showed the net equity purchases were the largest since March, when investors bought 2.22 trillion yen.

Investors sold a net 1.02 trillion yen of foreign short-term debt and 143 billion yen of long-term bonds. It marked the largest monthly net sale of overseas bonds in five months. Global debt markets faced a sharp selloff during the month, pushing long-term yields higher amid concerns about inflation, heavy government borrowing and the prospect of tighter monetary policy.

Japanese government bond yields also climbed. The benchmark 10-year yield reached 3% for the first time in three decades, making domestic debt relatively more attractive and potentially reducing the appeal of overseas bonds. The different directions of the equity and bond flows point to a rotation within foreign assets rather than a broad retreat from international markets.

The move came during a strong global corporate earnings season. LSEG data covering about 94% of companies in the MSCI All Country World Index showed average year-on-year earnings growth of 43.6%, with results exceeding analysts’ estimates by about 9.1%. Optimism about artificial intelligence remained strong as well. Nvidia, a leading AI indicator, forecast late last month that its revenue would rise about 70% in its next fiscal year.

Japanese investment trust management companies led overseas equity purchases, buying a net 1.35 trillion yen. Life insurers bought 24.9 billion yen of foreign shares. Both groups reduced foreign bond exposure, while pension funds moved in the opposite direction in fixed income, purchasing 2.33 trillion yen of foreign bonds and 567.1 billion yen of overseas equities.

Separate Bank of Japan data showed that Japanese investors had bought 1.22 trillion yen of U.S. stocks and 1.1 trillion yen of European shares through the end of July. They also bought 284.5 billion yen of British equities and 23.06 billion yen of French stocks, while selling a net 322.3 billion yen of German shares.