Nomura: JPY Monthly Flow Monitor — March Sees Record Foreign Net Selling of Japanese Equities

Nomura's latest monthly fund flow monitor reveals unprecedented capital movements across Japanese markets in March. Foreign investors executed a massive net sell-off of Japanese equities, offloading RMB7.4 trillion worth of stocks. This represents the largest single-month outflow on record, with persistent and aggressive selling spanning from the second to the fourth week of March. Concurrently, foreign investors turned net buyers of Japanese bonds, purchasing RMB598 billion.

Domestic capital flows were equally pronounced, with Japanese investors net selling RMB1.5 trillion in foreign securities. This was characterized by a net purchase of RMB2.2 trillion in foreign equities against a net sale of RMB3.8 trillion in foreign bonds. Notably, domestic banks aggressively unloaded foreign bonds for the second consecutive month, citing heightened interest rate risks driven by the hawkish stance of overseas central banks amid elevated oil prices. Life insurance companies also continued to reduce their foreign bond holdings, deterred by flattening yield curves diminishing carry appeal.

Conversely, investment trusts continued to channel capital into foreign equities via the New NISA framework, net buying RMB829 billion, with inflows remaining robust into April. Trust accounts, likely representing pension funds, engaged in portfolio rebalancing by purchasing RMB1.3 trillion in foreign equities while selling foreign bonds. Furthermore, Japan's current account surplus narrowed from RMB3.1 trillion in January to RMB2.7 trillion in February, primarily due to expanding trade deficits, although temporary Lunar New Year distortions likely influenced the data.