Japanese Investors Sell 536.4B Yen in Overseas Stocks, Buy 363B Yen in Bonds

Japanese investors continued to sell overseas stocks for the third consecutive month in July, driven by high valuations following a surge in stock prices and the decision to take profits. The weakening of the Japanese yen boosted returns, leading to a significant inflow of funds into high-yield overseas bonds. According to data released by the Ministry of Finance, Japanese investors net sold approximately 536.4 billion yen from overseas stock markets in July, following a net sell-off of 199 billion yen in June. Concurrently, net purchases of overseas bonds reached 363 billion yen, marking the third consecutive month of net increases. The yen's depreciation against the US dollar by approximately 4.5% in July was the largest monthly decline since December 2024.

Trust accounts, including pension funds, continued to net sell foreign stocks and buy long-term bonds for the third consecutive month. The net reduction in foreign stocks amounted to 152 billion yen, while net purchases of long-term bonds reached 419.6 billion yen. In July, the net investment in foreign stocks by Japanese banks, investment trust management companies, and insurance companies was 445.5 billion yen, 333.5 billion yen, and 207.1 billion yen, respectively.

Japanese investors' long-term bond investments in overseas bond markets reached 382 billion yen. However, short-term bills saw a net reduction of 196.6 billion yen. Data from the Bank of Japan showed that market participants in Japan net bought 573 billion yen in US bonds in the first half of the year, lower than the 640 billion yen net purchase in the same period last year. During the same period, Japanese investors' investment in European bonds reached 237 billion yen, with France and Germany bonds receiving net investments of 702 billion yen and 494 billion yen, respectively.

The depreciation of the yen has made overseas investments more attractive for Japanese investors, as the weaker currency increases the returns on foreign assets when converted back to yen. This trend is likely to continue as long as the yen remains weak, encouraging more Japanese investors to seek higher yields in overseas markets. The shift towards long-term bonds indicates a preference for stability and steady returns, which is consistent with the risk-averse nature of many Japanese investors, especially in the current economic climate.

The significant outflow from overseas stocks and the inflow into bonds suggest a strategic reallocation of assets by Japanese investors. The decision to take profits from stocks, which have seen substantial gains, and to invest in bonds, which offer more stable returns, reflects a cautious approach to managing risk. This strategy is particularly relevant given the uncertainty in global markets and the potential for further volatility in stock prices.

The trend of Japanese investors selling overseas stocks and buying bonds is likely to have broader implications for global financial markets. The increased demand for overseas bonds could drive up prices and lower yields, while the reduced demand for stocks could put downward pressure on prices. This dynamic could influence the decisions of other investors and market participants, potentially leading to further shifts in asset allocation and investment strategies.