Analysis-Japanese investors are leaving the reflation trade to foreigners By Gregor Stuart Hunter SINGAPORE (Reuters) -Japanese financial markets are undergoing a long-awaited reflation trade. There’s just one missing factor: the Japanese investor. Foreign buyers have been in the driving seat of a rally that has driven Tokyo shares to record highs last month and coincided with an appreciation of the yen. They have also been major sellers of Japanese government debt, causing yields on 30-year bonds to reach all-time peaks. "Global investors have been a major driver of the rise in Japanese stocks," said Nicholas Smith, a strategist at CLSA in Tokyo. "There is little sign of domestic investors chasing," after a rally in the Topix from lows reached in April, he said, which has pushed the index up 34.2%. As supportive government policies and corporate reforms help Japan to ignite economic growth after almost three decades of lacklustre activity, the Bank of Japan raised interest rates this year for the first time since before the 2008 global financial crisis and has sold down its vast holdings of government bonds. That has stoked an asset rotation from bonds into equities, boosting beat-up industrials at the expense of flashier growth stocks, while favouring shorter-dated bonds to the longer-dated end of the yield curve. Some analysts believe the rally in stocks could have further to run if Japanese retail investors resume buying, after pulling out some $23 billion so far this year. "Retail sentiment is finally back in the positive since last week after hitting an extremely bearish level," analysts from Bernstein said in a research report. 3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. Attributing retail investors’ caution to uncertainty over how U.S. tariffs would affect Japan’s economy and market volatility, they said the combination of a recovery in earnings, strong foreign investor confidence and return of retail flow "looks quite supportive for markets." Foreign flows into equities this year are the strongest of the past decade, and on track to mark the highest since the Abenomics-inspired influx of 2013. "Foreigners aren’t the only entities buying though: corporates, through share buybacks, were even larger," said CLSA’s Smith. "That’s very exciting, because corporates are awash with cash and could afford to buy a whole lot more." Despite the outsized moves in stocks and bonds, the yen has proven relatively stable, remaining stubbornly within a 140-160 trading range for the past two years rather than strengthening on the prospects of stronger growth, or from a rush of investor fund flows lured by higher bond yields or equity returns. "The big story is the lack of repatriation flows," said Brad Setser of the Council on Foreign Relations. Setser attributes the absence to Japanese institutional portfolios that invested heavily in U.S. Treasury markets prior to COVID-19 now being effectively under water after the Fed’s increases in interest rates. Put simply, Japanese capital is staying overseas rather than coming home to chase the gains. Analysts and traders are watching closely whether that will change as the Japanese markets spring into action. Here are some charts that show Japan’s asset rotation. 3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads. 1/ Asset class rotation Investors betting on stronger economic growth are pulling cash from fixed income and piling into stocks instead. The Nikkei 225 and Topix indexes have reached all-time highs. /2 Value beats growth Mirroring reflation trades in other countries, Japanese value stocks have outperformed faster-growing companies. Often, quantitative investors interpret this trend as an indication of economic growth becoming more diffused throughout the economy. /3 Carry trades Foreign buyers of JGBs are able to generate a substantial pickup over equivalent-dated U.S. debt. A five-year Treasury bond generates a yield of just 3.86%, compared to a Japanese government bond of the same maturity swapped into U.S. dollars which returns a 5% yield. This bond market alchemy is only possible because of the large interest rate gap differential between the Federal Reserve and the Bank of Japan. /4 Yen hedging costs But that boost only goes in one direction. Japanese investors find it more expensive to invest in the U.S. on a currency-hedged basis because of the Bank of Japan’s relatively low interest rates. Japan lost its crown as the world’s top creditor earlier this year to Germany, yet a sizeable quantity of its financial assets are held outside Japan and could be sold and brought back home. Which stock should you buy in your very next trade? AI computing powers are changing the stock market. Investing.com's ProPicks AI includes dozens of winning stock portfolios chosen by our advanced AI. Year to date, 3 out of 4 global portfolios are beating their benchmark indexes, with 98% in the green. Our flagship Tech Titans strategy doubled the S&P 500 within 18 months, including notable winners like Super Micro Computer (+185%) and AppLovin (+157%). Which stock will be the next to soar?

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Japanese investors dump foreign stocks, pile into bonds in July as yen weakens (Reuters) -Japanese investors sold foreign stocks for a third straight month in July, taking profits after a steep rally left valuations stretched, while channelling large sums into higher-yielding foreign bonds as a weakened yen boosted returns. According to data from Japan’s Ministry of Finance released on Friday, Japanese investors withdrew approximately 536.4 billion yen ($3.64 billion) from foreign equities in the month. They had sold 1.99 trillion yen worth of foreign stocks in the previous month. Meanwhile, Japanese investors snapped up 3.63 trillion yen worth of foreign bonds in July, marking a third monthly net purchase. The yen < JPY=> dipped approximately 4.5% against the dollar last month, the sharpest for a month since December 2024. Trust accounts (pension funds) sold foreign stocks and bought long-term bonds on a net basis for a third straight month. They divested a net 1.52 trillion yen worth of foreign equities and bought a net 419.6 billion yen worth of long-term bonds. July’s net foreign equity investments by Japanese bankers, investment trust management companies and insurers stood at 445.5 billion yen, 333.5 billion yen and 207.1 billion yen, respectively. Overseas bond markets received 3.82 trillion yen worth of Japanese investments in long-term bonds. Short-term bills, however, logged a net 196.6 billion yen divestment. Separate data from the Bank of Japan showed that Japanese market participants bought a net 5.73 trillion yen worth of U.S. bonds in the first half of the year, down from net purchases worth 6.4 trillion yen, a year ago. They also invested 2.37 trillion yen in European debt securities in the first half. French and German bonds received a significant 702 billion yen and 494 billion yen worth of Japanese net investments. ($1 = 147.3800 yen) With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Unsure where to invest next? Get access to our proven portfolios and discover high-potential opportunities. In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. That's an impressive track record. With portfolios tailored for Dow stocks, S&P stocks, Tech stocks, and Mid Cap stocks, you can explore various wealth-building strategies.

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Japanese investors ditch foreign stocks on US economic concerns, tariff tensions (Reuters) -Japanese investors significantly sold foreign stocks in the week to August 2 as major markets retreated on caution over U.S. economic outlook and a new set of trade tariffs. According to data from Japan’s Ministry of Finance released on Thursday, domestic investors withdrew a net 752.1 billion yen ($5.10 billion) out of foreign stocks last week, reversing two successive weeks of net purchases. The MSCI World Index lost a sharp 2.54% last week, the most in three months, pressured by a disappointing U.S. jobs report for July, and President Donald Trump’s new round of punishing tariffs on dozens of countries. Despite the recent withdrawals, overseas stock markets have still received a massive 3.37 trillion yen worth of Japanese investments so far this year compared with a net 915.8 billion yen sales a year ago. They also sold foreign long-term bonds of 526.3 billion yen for the second successive week on the run. Meanwhile, Japanese stock markets saw approximately 193 billion yen in weekly net investments from overseas, the smallest amount in six weeks. In local bond markets, foreign outflows from long-term bonds cooled to a three-week low of 87.5 billion yen. Short-term bills saw 1.2 trillion yen of net foreign inflows after a net 1.95 trillion yen weekly outflow in the previous week. ($1 = 147.5800 yen) With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Unsure where to invest next? Get access to our proven portfolios and discover high-potential opportunities. In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. That's an impressive track record. With portfolios tailored for Dow stocks, S&P stocks, Tech stocks, and Mid Cap stocks, you can explore various wealth-building strategies.

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Japanese investors offload German bonds in a large-scale sell-off Investing.com -- Japanese investors have initiated a substantial sell-off of German bonds in April, marking the largest monthly disposal of such bonds in more than ten years. This move comes a month after a spike in Germany’s borrowing costs, which was a response to an overhaul of debt rules aimed at increasing expenditure. The investors sold almost 1.5 trillion yen ($10.4 billion) of German bonds, after accounting for purchases, as per data released by Japan’s finance ministry. Commerzbank (ETR:CBKG) noted that this was the most significant sell-off since 2014. Germany’s decision to establish a 500 billion euro ($546 billion) infrastructure fund, and to relax strict borrowing rules for the purpose of enhancing defense spending, resulted in a sharp increase in its bond yields in March. Furthermore, Japanese investors also offloaded nearly 1.1 trillion yen of long-term U.S. Treasuries, as indicated by the data. This marks the most significant sell-off since October, according to Commerzbank. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. With valuations skyrocketing in 2024, many investors are uneasy putting more money into stocks. Unsure where to invest next? Get access to our proven portfolios and discover high-potential opportunities. In 2024 alone, ProPicks AI identified 2 stocks that surged over 150%, 4 additional stocks that leaped over 30%, and 3 more that climbed over 25%. That's an impressive track record. With portfolios tailored for Dow stocks, S&P stocks, Tech stocks, and Mid Cap stocks, you can explore various wealth-building strategies.

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Japanese investors extend foreign stock buying to eighth week on trade optimism - Reuters Japanese investors extend foreign stock buying to eighth week on trade optimism  Reuters

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