Japanese investors were net sellers of foreign stocks and bonds for the third consecutive month in December, as they remained cautious of rising U.S. bond yields and volatility in the yen. According to Japan’s Ministry of Finance, the net sales of overseas equities totaled 310.7 billion yen ($1.97 billion), following a larger net disposal of 1.22 trillion yen in November. In addition to equities, investors also offloaded foreign bonds worth 1.22 trillion yen, marking the largest bond sale since October 2024.
The trend of net foreign stock sales was led by Japanese trust accounts, which sold a net 1.52 trillion yen in foreign equities, continuing a four-month streak of disposals. On the other hand, investment trust management companies and life insurers saw a different approach, with both sectors making acquisitions, buying 909.9 billion yen and 137.5 billion yen worth of stocks, respectively.
Throughout 2024, Japanese investors were net sellers of foreign equities, shedding approximately 3.48 trillion yen, with the majority of these sales—around 3.9 trillion yen—occurring in the final quarter. Despite this, there was a notable shift in investment strategy towards bonds, with Japanese investors purchasing overseas bonds worth 4.16 trillion yen over the course of the year.
The final months of 2024 saw investors adjusting their expectations for the Federal Reserve’s interest rate cuts, driven in part by concerns over inflationary pressures linked to incoming U.S. President-elect Donald Trump’s policies on tariffs, immigration, and taxes. Minutes from the Fed’s December 17-18 meeting underscored growing worries among officials about persistent price increases and the possible effects of Trump’s economic policies.
This shift in expectations was reflected in financial markets as well. The U.S. dollar index surged to a two-year high, while the benchmark 10-year U.S. Treasury yield rose to 4.805%, its highest level since November 2023, as the outlook for Fed rate cuts continued to evolve.
In a broader context, data from the Bank of Japan revealed that local investors sold a net 1.87 trillion yen of U.S. equities in the year leading up to November 2024. Additionally, they divested 471 billion yen in European stocks and 220 billion yen worth of British equities during the same period.
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