Foreign Investment Surge in Japanese Markets Amid Global Volatility
In April, Japanese markets witnessed a historic influx of foreign capital, as international investors acquired a remarkable ¥8.2 trillion ($57 billion) in Japanese equities and bonds. This surge has been largely attributed to the volatility following Donald Trump’s controversial tariff announcements, which has made Japan an attractive destination within the “de-dollarisation” movement.
Record Highs in Investments
Recent data from Japan’s Ministry of Finance indicates that April recorded the highest monthly foreign investment in Japanese assets since records began in 2005, significantly exceeding the 20-year average for that month. The notable highlights include:
- Equity Purchases: Net acquisitions of $25.5 billion in equities, marking the greatest amount since April 2023.
- Bond Investments: A robust $31.5 billion in long-term bonds, the highest recorded since July 2022.
Factors Behind the Investment Surge
Traders suggest that this unprecedented buying activity may have been spurred on by central bank reserve managers acquiring Japanese government bonds (JGBs). Yujiro Goto, chief FX strategist at Nomura, stated that the increase in long-term debt purchases was notably higher than average seasonal trends, indicating a simultaneous interest in equities.
Investors, according to Goto, may be reallocating funds from the US to Japan amid the evolving “de-dollarisation” trend, favoring Japan for its market stability and substantial size.
Investor Reactions and Economic Implications
Mansoor Mohi-uddin, Bank of Singapore’s chief economist, noted that the surge in Japanese asset purchases coincided with apprehensions about shifts in US economic policies, including trade wars and criticisms directed at US Federal Reserve Chairman Jay Powell. He commented on the potential effects of “de-dollarisation,” stating, “When they diversify, they are looking for liquid markets, and for a reserve manager, Japan stands out in that regard.”
Market Stabilization and Future Outlook
This wave of investment occurred as Trump announced a temporary halt to additional tariffs on China for 90 days, resulting in market stabilization. Nevertheless, uncertainty remains as to whether foreign purchases of Japanese assets will maintain their momentum.
According to a recent survey by Bank of America, institutional investors are predominantly concerned that changes in the Trump administration’s economic policies could trigger stagflation in the US. The same survey highlighted shifting perceptions regarding the US dollar’s safe haven status, indicating that a “short US dollar” strategy is gaining traction among fund managers.
Although Trump’s policies have raised uncertainty, the dollar continues to hold a strong position both in absolute terms and relative to other potential currencies.