Japanese Individual Investors Sell Off Domestic Stocks, Increasingly Trusting the US Market

In a rare development over the past decade, individual investors in Japan are selling domestic stocks at the fastest pace since 2014, while continuously pumping money into foreign markets—especially the US. This capital flow reflects a profound shift in Japanese household investment mindset, despite the strong growth of the domestic stock market. Capital Flows Out of the Domestic Market Despite Strong Japanese Stock Performance According to data from the Japan Exchange Group and the Japan Investment Funds Association, as of the end of November 2025, Japanese individual investors have net sold approximately ¥3.8 trillion (equivalent to $24.3 billion) in stocks and related domestic market funds. Notably, this net selling wave occurred in the year when the Topix index increased by about 25%, marking a significant outperformance compared to the S&P 500 (in yen terms)—the largest such outperformance since 2015. In other words, Japanese individual investors are selling domestic stocks even during a strong bullish trend. Money Outflow Near Record Levels Contrary to the trend of selling domestic stocks, foreign investment flows remain very high. During the same period, Japanese investors have net bought about ¥9.4 trillion through investment funds holding foreign stocks—close to the record set in 2024. This trend indicates Japanese investors’ persistent confidence in the US market, especially as President Donald Trump enters his second term, with expectations that pro-business and financial market-friendly policies will continue. Weak Yen as a Key Catalyst A key factor driving capital outflows is the prolonged weakening of the yen. When converting profits from US and international markets back into yen, Japanese investors see significantly higher returns, even if the underlying markets only increase moderately. This exchange rate effect makes US stocks more attractive compared to domestic stocks. At the same time, capital outflows continue to exert downward pressure on the yen, creating a vicious cycle. Domestic Economic Policies Fail to Retain Capital The net selling trend among individual investors occurs despite relatively positive domestic economic fundamentals. Japanese corporate profits remain stable, while Prime Minister Sanae Takaichi continues to pursue growth-promoting policies, including increased fiscal spending. Meanwhile, the Bank of Japan (BoJ) has begun raising interest rates, marking a significant shift after years of monetary easing. However, these measures have yet to be enough to keep domestic capital in Japan. NISA and Interest Rate Structures Weaken the Yen Further Mr. Adarsh Sinha, Head of G10 Interest Rate and FX Strategy at BofA Securities, states that Japan’s household outflows are “unprecedented.” He believes that NISA (tax-free investment accounts) have inadvertently accelerated capital flows into foreign stocks, contrary to policymakers’ initial expectations of domestic investment. According to Mr. Sinha, this capital flow is one of the reasons the yen remains weaker and stays at a low level longer than market forecasts. Pressure on the Yen Shows No Signs of Ending Major financial institutions like JPMorgan and BNP Paribas currently forecast USD/JPY could reach 160 or higher by the end of 2026, mainly due to long-term structural differences. Currently, the 10-year Japanese government bond yield is about 2 percentage points lower than US Treasuries, while the real interest rate (inflation-adjusted) remains negative. This makes the yen less attractive to yield-seeking investors, especially in a volatile global environment. Asian Markets Show Promise but Risks Accumulate In the short term, Japanese stocks are expected to open positively after the holiday, with Nikkei 225 futures trading around 51,000 points. Other major markets in the Asia-Pacific region also show relatively favorable movements. However, Hideyuki Ishiguro, Chief Strategist at Nomura, warns that many Japanese individual investors are overly allocated to US stocks, especially in the tech sector. He notes that high valuations and the risk of a tech correction could make portfolios vulnerable if a sharp downturn occurs. He suggests that 2026 should be a year for Japanese investors to seriously reconsider their asset diversification strategies. Conclusion The trend of net selling domestic stocks and increasing foreign investments among Japanese individual investors not only reflects confidence in the US market but also highlights deep structural challenges within Japan’s economy and financial markets. While a weak yen provides short-term advantages for foreign investment, concentration risks and global volatility could make this strategy dangerous if the trend reverses. This poses a significant challenge for both individual investors and policymakers in Japan moving forward.