Japan stocks pull record $18.6B foreign inflow after 3-week selloff

Foreign investors poured a record 2.96 trillion yen ($18.65 billion) into Tokyo-listed shares in the week ended April 4, reversing three straight weeks of selling as easing geopolitical tensions and fiscal year-end trading patterns drew buyers back into Japan’s market.

Ministry of Finance data showed the inflows marked a sharp turnaround after overseas investors had sold heavily through March.

The rebound came as investors grew more confident that a temporary truce between the US and Iran would hold, easing fears of a broader regional conflict and helping revive appetite for risk assets across Asia.

Japan’s stock market responded quickly.

The Nikkei 225 climbed 5.39% on Wednesday and touched a three-year high as buying spread across blue-chip stocks, with exporters and other cyclical shares among the main beneficiaries.

Foreign inflows return

The latest weekly reading underscores how quickly overseas sentiment towards Japanese equities can shift.

Foreign investors had dumped about 7.37 trillion yen of Japanese stocks in March, but stepped back in force at the start of the new fiscal year.

Part of that swing appears to reflect seasonality rather than a wholesale change in fundamentals.

Around the end of Japan’s fiscal year, foreign financial institutions often move Japanese shareholdings to offshore arms in order to capture dividend-related tax advantages and manage voting rights more efficiently.

That tends to create artificial selling pressure in March, followed by a rebound in early April.

Tomochika Kitaoka, an analyst at Nomura, said those seasonal flows likely amplified the rally as investors unwound positions built before the fiscal year-end.

Truce lifts market mood

The improvement in geopolitical sentiment gave investors an additional reason to buy back into the market.

Relief that the US-Iran stand-off had eased supported a broad-based rebound in global risk assets, and Japan’s equity market was one of the clearest beneficiaries.

The rally reflected more than short covering.

Investors returned to large, liquid stocks that tend to attract foreign money during periods of improving confidence, suggesting the move was driven at least in part by fresh allocations rather than purely tactical repositioning.

That matters because Japan has remained a favoured market for global funds seeking exposure to Asia without taking on the same degree of direct China risk.

When geopolitical tension eases, the market often becomes an early recipient of renewed foreign flows.

Bond demand stays firm

Overseas investors also bought 2.46 trillion yen of Japanese long-term bonds during the period, according to the data.

That came as yields on benchmark Japanese government bonds climbed towards their highest levels in nearly three decades, improving the appeal of fixed income for international investors.

The simultaneous pickup in demand for both equities and bonds points to a broader reassessment of Japanese assets.

Higher domestic yields are making Japan’s bond market harder to ignore, while a stabilisation in external risk sentiment is helping equities regain momentum.

What investors will watch

The key question now is whether the rebound in foreign buying can be sustained once the seasonal effect fades.

If inflows continue in the coming weeks, investors may read that as evidence that Japan’s rally has deeper support from global asset allocators.

For now, the combination of a record weekly equity inflow, stronger bond demand and a three-year high in the Nikkei suggests overseas investors are once again willing to add to Japan exposure, provided the geopolitical backdrop remains calm and domestic yields stay supportive.