Japanese investors favoured foreign equities over bonds in August

Japanese investors showed a significant preference for foreign equities over bonds in August, with net purchases of overseas stocks reaching the highest level in five months at 1.3 trillion yen ($8.45 billion). Simultaneously, they reduced their holdings of overseas bonds, marking the largest net sales of such debt in five months at 1.02 trillion yen.

This shift followed a sharp selloff in global debt markets, driven by rising long-term yields due to concerns over inflation, heavy government borrowing, and the possibility of tighter monetary policy. The benchmark 10-year Japanese government bond yield climbed to 3%, the highest level in three decades, making domestic debt more appealing to Japanese investors and potentially reducing the appeal of foreign bonds.

Despite the shift, investors maintained exposure to global equities while trimming fixed-income holdings. Japanese investment trust management companies were the primary buyers of foreign equities, purchasing a net 1.35 trillion yen in August, while pension funds increased their foreign bond purchases by 2.33 trillion yen.