Japanese Pension Funds Surge into Foreign Stocks Amid Global Market Volatility
2min read Japanese institutional investors, including pension proxy funds, set a new record for foreign equity purchases in April 2025, buying ¥610.4 billion ($4.28 billion) in overseas stocks during the week ending April 19. This marked the 20th consecutive week of net purchases, underscoring a sustained shift toward global equities despite heightened geopolitical risks and monetary policy uncertainty.
The buying spree reflects strategic reallocations by Japan’s Government Pension Investment Fund (GPIF)—the world’s largest pension fund with a ¥1.6 quadrillion ($12 trillion) portfolio—and other institutional investors. These funds have increasingly prioritized foreign equities and bonds, now comprising 50% of GPIF’s total holdings, as domestic yields remain near historic lows.
Driving the Surge: Yen Carry Trade, Policy Shifts, and GPIF’s Strategy
Japanese investors have long relied on the yen carry trade, borrowing low-yielding yen to invest in higher-yielding foreign assets. While concerns about the carry trade unwinding (due to potential Bank of Japan rate hikes) briefly spooked markets in early 2025, the yen’s stability and GPIF’s long-term foreign allocations have kept capital flowing outward.
The persistent yield gap—Japan’s benchmark rate at 0.2% versus the U.S.’s 4.5%—has made overseas equities an attractive income source. However, GPIF’s equity purchases also reflect a broader diversification push. The fund’s shift from domestic bonds to foreign stocks aligns with Japan’s net international investment position of ¥330 trillion ($2.3 trillion), the largest globally, driven by decades of current account surpluses.
Meanwhile, overseas investors have been snapping up Japanese assets in parallel. Over three weeks ending in late April, foreign buyers injected ¥11.95 trillion into Japanese bonds and ¥3.7 trillion into equities, drawn by the yen’s safe-haven appeal and BOJ’s dovish stance.
Risks on the Horizon
The record foreign equity purchases come amid rising geopolitical tensions and monetary policy crosscurrents. The U.S. Federal Reserve’s potential rate hikes could compress global equity valuations, while Japan’s persistent trade deficits and yen volatility pose risks.
A stronger yen would reduce the returns on yen-denominated foreign investments, potentially reversing the carry trade. Additionally, U.S. trade policy uncertainty—such as tariffs on Japanese auto exports—has already led to periodic selloffs in Asian equities.
Conclusion: A Sustained Trend with Caution
Japanese pension funds and institutional investors are unlikely to retreat from global equities anytime soon. The 20-week streak of net purchases and GPIF’s structural foreign allocations signal a long-term commitment to diversification. With ¥330 trillion in net foreign assets, Japan’s capital outflows will remain a key driver of global markets.
However, investors must weigh these trends against near-term risks. If the BOJ raises rates faster than expected or the yen strengthens significantly, the carry trade could reverse, halting Japan’s equity buying spree. For now, the data points to a resilient appetite for foreign equities—a testament to Japan’s reliance on global markets to offset domestic stagnation.
Institutional investors’ actions in April 2025 highlight a critical balance: the allure of foreign yields versus the fragility of a world economy still navigating trade wars and monetary tightening. The next few quarters will test whether this record-setting momentum can endure.
