What are investors buying and selling in Japan? Via Investing.com

Foreign investors, who account for 70 percent of the value of Japanese stock trading, have driven the recent slide in share prices since early July.

According to analysts at UBS Global Research in a note dated Friday, after buying about 2.9 trillion JPY (about $20 billion) worth of Japanese stocks from early 2024 to mid-July, foreign investors and- have reversed positions, selling their holdings over the past three weeks.

This caused them to become net sellers, shedding JPY 40 billion ($275 million) year-to-date as of August 2.

However, a deeper analysis shows that these investors have not completely abandoned their bullish outlook on Japanese stocks. Although they have turned into net sellers, they have maintained their long equity positions in cash since last year, signaling a constructive medium-term view of the market.

Instead, they were net sellers of futures contracts, a move likely driven by a lack of conviction in immediate market catalysts, concerns over high yen volatility and global macroeconomic uncertainties.

Domestic individual investors and Japanese corporations have taken a different approach during this turbulent period. Domestic investors have been net buyers, and Japanese corporations have consistently carried out large-scale share buybacks announced at the start of the fiscal year.

“Of course, market volatility in recent weeks has been unexpected, and it is undeniable that the sudden appreciation of the yen has reduced the upside potential of Japanese stocks,” the analysts said.

As the dust settles and uncertainties such as yen volatility and global risk sentiment become clearer, analysts at UBS Global Research expect foreign investors to shift from holding cash positions to increasing them.

This shift could pave the way for a sustained upward trajectory for Japanese stocks, especially as the focus shifts from the yen’s depreciation to the ability of Japanese companies to sustainably improve their profitability and return on equity.