Foreign Investors Sell 524.3 Billion Yen in Japanese Stocks Amid Valuation Concerns

Foreign investors, who had been aggressively buying Japanese stocks for 11 consecutive weeks, suddenly hit the brakes last week, resulting in a net sell-off of 524.3 billion yen in Japanese equities. This marked the first time since March that foreign investors have sold Japanese stocks, according to data released by the Japanese Ministry of Finance. The shift in sentiment comes after a period of sustained buying, during which foreign investors poured 7.2 trillion yen into the Japanese market. The sudden change in strategy suggests that some investors may believe Japanese stocks have become overvalued, leading to a reassessment of their positions.

Market analysts attribute the shift to concerns over the valuation of Japanese stocks. The market's upward trajectory has outpaced the growth in corporate earnings, leading to a perception that stocks are overvalued. This sentiment is further exacerbated by geopolitical tensions, particularly the conflict between Israel and Iran, which has raised concerns about potential disruptions to Japan's oil imports and inflation levels. Japan's core inflation rate for May reached its highest level in over two years, adding pressure on the Bank of Japan to consider raising interest rates amidst uncertainty surrounding U.S. trade policies.

Despite the recent sell-off, the overall trend for the quarter remains positive. Japanese stocks have seen a net inflow of approximately 6.81 trillion yen from foreign investors, marking the largest inflow in two years. This indicates that while there may be short-term fluctuations, the long-term outlook for Japanese equities remains favorable. The data from the Ministry of Finance covers major market participants, including stocks, ETFs, and over-the-counter transactions, providing a comprehensive view of the market dynamics.

In the bond market, foreign investors also showed a mixed approach. They net sold 368.8 billion yen in Japanese long-term bonds, ending a three-week buying streak. However, they significantly increased their purchases of short-term bills, reaching 1.5 trillion yen, the highest level in nine weeks. Meanwhile, Japanese investors continued to sell foreign stocks for the sixth consecutive week, amounting to 88.2 billion yen, while buying approximately 615.5 billion yen in long-term foreign bonds. This dual dynamic in the bond market reflects the cautious yet opportunistic stance of investors in the current economic climate.