(Jan 5): Japan’s retail investors have ignored the equity rally at home and have placed their faith in overseas stocks.
Individuals unloaded a net JPY3.8 trillion (US$24.3 billion or $31.2 billion) of Japanese stocks and related investment trusts through November 2025, the most in more than a decade, according to data from Japan Exchange Group Inc and the Investment Trusts Association, Japan compiled by Bloomberg. At the same time, the Topix index jumped about 25% last year.
Meanwhile, their net buying of overseas stocks via investment trust funds has hovered near 2024’s record-high JPY9.4 trillion, indicating that retail investors continue to have a good appetite for foreign assets. That’s driven by weakening in the yen which inflates the value of overseas equities in Japanese currency terms.
“I simply see greater potential in US equities,” said Ryohei Kobayashi, 36, who invests almost exclusively in American stocks at the moment and runs a YouTube channel focused on wealth management, with more than 850,000 subscribers. “That’s especially the case now, when major tech companies like the Magnificent Seven may come to dominate growth in the AI sector,” he said.
Flow of funds out of Japan puts weakening pressure on the yen. The currency also may be impacted by the Bank of Japan increasing interest rates and more government fiscal spending to stimulate the economy. The fund exodus runs counter to the goals of Japanese policymakers, who are nudging households to shift from saving to investing to boost returns and channel more cash to domestic companies to fuel growth.
“The outflow has been unprecedented,” said Adarsh Sinha, the global head of G10 rates and foreign exchange strategy at BofA Securities, noting that the Japanese government’s introduction of tax-free investment accounts known as Nisa has accelerated purchases of foreign equities. “It’s been the reason that the yen has been much weaker for longer than people generally expect.”
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That’s despite the rally in Japanese equities in 2025, underpinned by resilient earnings and the pro-growth policy stance of Sanae Takaichi’s administration. The Topix’s 25% advance in 2025 marks its biggest outperformance of the S&P 500 index in yen terms since 2015.
JPMorgan Chase & Co and BNP Paribas SA are among those who expect the yen to weaken to 160 per dollar or beyond by the end of 2026. Structural factors are dragging on the Japanese currency, including the nation’s bond yield gap with the US — its benchmark 10-year yield remains about two percentage points lower than Treasury counterparts. Real rates adjusted for inflation are still negative, making them unattractive for investors seeking yields.
Still, a slowdown in the AI rally may prompt retail investors to shift their focus to domestic equities. Some retail investors are excessively overweight US stocks, making their portfolios vulnerable to potential tech sell-offs, said Hideyuki Ishiguro, the chief strategist of Nomura Asset Management Co. With concerns lingering over hefty valuation in the technology sector, 2026 should be a year to rethink asset diversification, he said.
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The contrarian mindset of many retail investors has been shaped by more than three decades when Japanese markets stayed in relatively tight ranges, and it was easier to profit by buying when securities dropped, according to Ishiguro.
“Those old fixed ideas are deeply ingrained,” he said. “Selling by retail investors will probably continue.”
Uploaded by Isabelle Francis
