Last week witnessed an unprecedented surge in foreign investment in Japanese stocks, totaling ¥1.18 trillion ($7.7 billion), marking the highest influx since 2013. This surge is attributed to investor confidence that Japanese companies will enhance shareholder returns through increased dividends and share buybacks, amidst efforts to foster a more investor-friendly corporate culture.
The volume of stocks purchased by foreign investors last week is second only to the ¥1.5 trillion recorded in 2013, as per the latest figures from the Japan Exchange Group Inc. Additionally, Japanese individual investors have shown a keen interest, acquiring ¥634 billion worth of shares in the opening week of the financial year, the most significant amount since September.
According to Ikuo Mitsui, a fund manager at Aizawa Securities Co., the attractiveness of Japanese stocks to foreign investors may stem from the companies' ability to maintain profitability in a moderately inflationary environment. There is an anticipation of further investment from abroad if Japanese companies project even a modestly positive outlook on their earnings momentum.
Despite the Nikkei 255 Stock Average experiencing a 3.4% decline last week, its most substantial weekly drop since December 2022, attributed to widespread selling by Japanese investors for profit-taking, the overall investment sentiment remains positive. Trust banks, however, recorded a historic net sell-off amounting to ¥789 billion, a metric closely monitored for insights into institutional investor behavior.
Interestingly, while there was a sell-off of ¥346 billion in stock futures by overseas investors, their cumulative investment in cash equities and futures topped ¥836 billion, the highest since January. Mitsui predicts a cautious yet optimistic increase in foreign stakes in Japanese equities during the first half, as overseas investors aim to correct their underweight positions.
