Foreign investors poured a record 8.21 trillion yen ($56.6 billion) into Japan’s equities and long-term bonds in April. This surge in investment was driven by global uncertainty sparked by U.S. President Donald Trump’s trade policies, prompting investors to flee the United States.
Key Highlights
- The investment marked the largest net inflows for a calendar month since Japan’s finance ministry began collecting data in 1996, according to Morningstar.
- Trump’s trade wars with allies and adversaries, including China, Canada, and Mexico, have led investors to reassess their portfolios amid concerns about global economic growth.
Expert Insights
- Yujiro Goto, Nomura’s head of FX strategy in Japan, stated, "Trump tariff shocks likely changed global investors’ outlook on the U.S. economy and asset performance."
- Kei Okamura, Neuberger Berman’s SVP and Japanese equities portfolio manager, added, "So this trend has legs…Japan will likely continue to see good flows."
Impact on Japan’s Economy
The significant increase in foreign investment is expected to positively impact Japan’s economy as it continues to attract capital from around the world.
Foreign Ownership Trends
- According to data from the Tokyo Stock Exchange (TSE), foreign ownership of Japanese stocks rose 2 percentage points from March levels, reaching 28% of total market value at the end of April.
- This figure, while still below pre-2007 crisis highs, is higher than levels seen during previous periods of market volatility, such as after the Lehman Brothers’ collapse or the Brexit vote last year.
Bond Market Activity
- Foreigners increased their holdings of long-term bonds by 1.4 trillion yen ($9.8 billion) last month.
- They sold short-term debt worth $3 billion more than they bought over the April-end period, compared to the previous month when they also sold $3 billion more than they bought.
Attractiveness of Japanese Government Bonds
Japanese government bonds (JGBs) are appealing due to relatively high yields compared to other developed markets, such as Germany or France, where interest rates are negative or close to zero percent.
- Takashi Hirokawa, an analyst at Bloomberg Intelligence, remarked, "The current environment is very favorable for foreign buying," and he expects foreigners will continue purchasing JGBs until the year-end.
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