Japanese stocks ride the "roller coaster": foreign investors withdraw first, retail investors rush in

According to the information obtained from the Zhitong Finance and Economics APP, as of the week ending on August 2, foreign investors continued to sell Japanese stocks because they were concerned that the appreciation of the yen would cast a shadow on the profit prospects of export-dependent companies, and the historic rate hike by the Bank of Japan further supported the yen. However, retail investors continued to buy Japanese stocks.

Data from the Tokyo Stock Exchange shows that foreign investors sold Japanese stocks worth 1.07 trillion yen (7.33 billion U.S. dollars) last week, compared to a net sale of 1.58 trillion yen the previous week.

Overall, foreign investors have withdrawn a net amount of 1.14 trillion yen from the Japanese stock market this year, a sharp contrast to the net purchase of 7.91 trillion yen last year.

Foreign investors net sold 515.41 billion yen of derivative contracts, marking the third consecutive week of net sales. They also sold around 552.43 billion yen of cash stocks.

Foreign investors continue to sell Japanese stocks and futures

In contrast, retail investors continued to buy Japanese stocks last week, marking the fourth consecutive week of net purchases and the longest duration of net purchases since early January 2023. According to data from the Japan Exchange Group, retail investors net bought 469.21 billion yen (approximately 3.2 billion U.S. dollars) through cash and futures trading.

Retail investors continue to buy Japanese stocks

"Japanese Stocks Ride the Roller Coaster"

Impacted by the uncertainty of the Bank of Japan's tightening policy path and concerns about the slowdown in the U.S. economy, the yen surged, and the Nikkei 225 index fell by 4.67% last week.

On Monday, the Nikkei 225 index plummeted by 12.4%, marking the largest single-day decline since Black Monday in 1987. The index violently rebounded by over 10% the next day, achieving the largest single-day increase in history.

Naoki Kamiyama, Chief Strategist at Nikko Asset Management, stated, "The current level seems to be where the market is establishing a foothold for recovery."

"With the support of continuous wage increases, domestic demand in Japan remains strong, and we believe that wage increases could become a catalyst for the recovery of the Japanese stock market."

Last week, the Bank of Japan raised its interest rate target to 0.25%, the highest level in 15 years, pushing the yen against the dollar to around 141.66 yen per U.S. dollar on Monday, before partially retracing some gains in the following trading days.

"Japanese Bonds Are Also Losing Their Appeal"

Data from the Japanese Ministry of Finance shows that in the bond market, cross-border investors have been net sellers of Japanese bonds for the eighth consecutive week. Foreign investors sold short-term Japanese bonds worth 953.5 billion yen, marking the eighth consecutive week of net sales Foreign funds flowing out of Japanese long-term bonds reached ¥1.16 trillion, reversing the previous week's inflow of ¥1.21 trillion.

After three consecutive weeks of net selling, Japanese investors purchased long-term overseas bonds worth ¥669.7 billion and bought approximately ¥7.1 billion in short-term bonds.

Japanese investors net bought foreign stocks worth ¥1.29 trillion, the highest level since at least January 2005