September looms as a risk month for stocks, Yardeni says
Bank of America noted a significant uptick in Japan’s retail investment into foreign equities. According to their data, net inflows into Toshins, Japanese mutual funds with a focus on foreign assets, surged by ¥1.5 trillion ($9.8 billion) in January 2025, marking a 46% increase year-over-year.
This substantial growth outpaced expectations, even accounting for the annual reset of the NISA (Nippon Individual Savings Account) quotas, which typically encourages increased investment activity.
The report highlighted that the United States was a primary beneficiary of these inflows. Approximately half of the net ¥1.5 trillion went into US-focused Toshins, with the remaining funds directed towards global-focused Toshins. This distribution underscores the appeal of US equities and the US dollar among Japanese retail investors.
Notably, two funds, the eMAXIS Slim S&P500 Fund and the eMAXIS Slim World Equity Fund, with a 66% allocation to US assets, attracted a combined 51% of the total estimated inflow.
The trend of Japanese retail investors shifting their assets from yen cash to riskier assets, particularly foreign equities, has been ongoing. Despite a brief slowdown following the market crash in August 2024, net inflows to foreign equity funds continued throughout the year.
January’s jump in inflows suggests that Japanese investors are actively rebalancing their portfolios to shield their wealth from the effects of negative real interest rates and the depreciating yen.
Bank of America’s analysis indicates that this rebalancing trend, coupled with Japanese corporate outward foreign direct investment (FDI), is contributing to the yen’s prolonged weakening.
The pattern of investment behavior shows a clear preference for diversifying into foreign assets, particularly in the United States, which is seen as a means to hedge against domestic economic concerns.
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