Japanese Stock Market Sees Best Quarter in a Decade Despite Foreign Investor Sell-Off


Foreign investors sell ¥1.18 trillion in Japanese stocks and futures, marking the largest sell-off in six months after a rally.

By Athena Xu

4/4, 06:03 EDT

Key Takeaway

  • Foreign investors sold a net ¥1.18 trillion ($7.8 billion) of Japanese stocks and futures, the largest sell-off in six months.
  • Despite this, Japan's stock market concluded its best quarter in over a decade, driven by economic strength and a weak yen.
  • Domestic retail investors turned net buyers with ¥444 billion, indicating strong local confidence in the market's long-term prospects.

Profit-Taking After Rally

In a recent turn of events, foreign investors have decided to lock in gains from the exceptional rally in Japanese stocks, marking a strategic move after a period of significant growth. Last week, these investors sold a net ¥1.18 trillion ($7.8 billion) of cash equities and futures combined, as per data from Japan Exchange Group Inc. This level of sell-off, the most substantial in six months, underscores the impressive rally that preceded it, highlighting the strength and attractiveness of the Japanese stock market to global investors.

A Quarter to Remember

Despite the recent sell-off, it's crucial to note that the Japanese stock market has just concluded its best quarter in over a decade. This remarkable performance was buoyed by the robust health of both the Japanese and US economies. A sustained weakness in the yen, coupled with expectations of improving shareholder returns, has been a key driver of the market's upward trajectory. The Nikkei 225 Stock Average, even after a slight decline of 1.3% last week, stands as a testament to the market's recent successes, having reached fresh highs the week before.

Domestic Confidence Remains Strong

Interestingly, while foreign investors were taking profits, domestic retail investors demonstrated their confidence in the market's fundamentals. These investors added ¥444 billion in the period through March 29, turning net buyers after being net sellers the previous week. This shift indicates a strong belief in the long-term prospects of the Japanese stock market among local investors, who seem to view any dip as a buying opportunity.

Strategic Rebalancing

The sell-off by foreign investors can also be seen as a strategic rebalancing of portfolios at the quarter's end, a common practice among funds to optimize their asset allocation. This move, while significant, is part of the ebb and flow of the global financial markets and reflects the dynamic nature of investment strategies in response to market conditions.