Energy costs rising plus inflation concerns. Japanese investors sell overseas stocks for the first time in four months.

Due to the escalation of geopolitical conflicts pushing up energy prices and the continued fermenting of inflation risks, Japanese investors turned net sellers of foreign stocks in April for the first time in four months. Analysts believe that concerns over rising energy costs due to the escalation of tensions in the Middle East leading to a potential war with Iran, coupled with lingering inflation pressures in the US and Europe, have made investors more cautious towards overseas stock markets. Data released by the Japanese Ministry of Finance on Wednesday showed that Japanese investors sold a net total of 636.4 billion yen (approximately $40.4 billion) in foreign stocks in April, marking the largest monthly net sales since October 2025. In contrast, Japanese investors were still in a net buying position in March. In the bond market, the selling pressure from Japanese investors on foreign bonds has somewhat eased. Net sales of foreign bonds in April were 219.2 billion yen, the lowest level in nearly three months, indicating a temporary relief in selling pressure in the bond market after several months of continuous reduction. Accelerating inflation in the US Data released by the US Department of Labor on Tuesday underscored the cautious sentiment mentioned above. The Consumer Price Index (CPI) in April rose by 3.8% year-on-year, the fastest pace since 2023, with a month-on-month increase of 0.6%. Increases in food, services, rent, and airfare costs indicate persistent inflationary pressure. Meanwhile, real average hourly earnings, adjusted for inflation, declined by 0.3% year-on-year for the first time in three years. Analysts believe that if future PCE data does not show a significant synchronized increase, the Federal Reserve may still maintain an "observation mode" rather than quickly shifting towards further tightening. This exacerbates concerns in the market that the Fed may delay rate cuts or continue with rate hikes, thereby curbing investors' risk appetite for foreign stocks. Divergence in account operations From the perspective of investor structure, there is a clear divergence in the behavior of various types of accounts. Japanese trust accounts withdrew 1.85 trillion yen from foreign stocks in April, the largest monthly net outflow since June 2025; however, they also invested 897.3 billion yen in overseas long-term bonds, exhibiting a risk-averse strategy of "abandoning stocks in favor of bonds." In contrast, investment trust management companies and life insurance companies became net buyers of foreign stocks, purchasing 1.25 trillion yen and 333.1 billion yen respectively. Despite the overall net selling, some long-term funds are still choosing to buy on dips. Significant selling pressure on US bonds in the first quarter In addition, another report released by the Bank of Japan on the same day showed that Japanese investors significantly reduced their holdings of US and European bonds in the first quarter of this year. They sold a total of 4.95 trillion yen of US bonds and 1.02 trillion yen of European bonds during the period. The selling of French bonds and German bonds reached 797.66 billion yen and 307.65 billion yen respectively. Analysts point out that Japanese investors continue to reduce their holdings of foreign bonds, mainly due to the uncertainty in interest rate paths in the US and Europe, as well as the high cost of currency hedging. As the Bank of Japan's monetary policy further normalizes in the future, the trend of funds flowing back to the domestic market may continue.