A man walks past an electronic board showing the Nikkei 225 index on the Tokyo Stock Exchange along a street in Tokyo on April 7, 2025.
Kazuhiro Nogi | Afp | Getty Images
Japan saw record foreign inflows into its equities and long-term bonds in April as investors fled U.S. markets following President Donald Trump’s trade salvo against friends and foes alike.
Overseas investors bought 8.21 trillion yen ($56.6 billion) worth of equities and long-term bonds in April, according to government data. The net inflows were the largest for a calendar month since Japan’s finance ministry started collecting data in 1996, according to Morningstar.
“Trump tariff shocks likely changed global investors’ outlook on the U.S. economy and asset performance, which likely led to diversification away from the U.S. to other major markets including Japan,” said Yujiro Goto, Nomura’s head of FX strategy in Japan.
Now, with the U.S. softening its trade stance and striking deals, including with China, the confidence in U.S. assets is getting restored. So, what does that bode for Japanese assets?
It was quite an exceptional month, when you consider everything that has happened in the global macro economic environment.
Kei Okamura
Neuberger Berman
Most of the 8.21 trillion yen of net inflows also occurred in the first week right after April 2, according to the ministry’s data.
Following Trump “reciprocal” tariffs announcement the U.S. 10-year Treasury yield spiked by 30 basis points (April 3 to 9) while Japan’s 10-year yield fell by 21 basis points (April 2 to 8).
While equities globally saw a sell-off in the immediate aftermath of Trump tariffs, for the full month, Japan’s Nikkei 225 rose over 1%, compared with the S&P 500, which dropped by a little under 1%.
Japanese assets are generally considered a haven, whose appeal rose as the “sell-U.S.” narrative gained ground in April, said Rashmi Garg, senior portfolio manager at Al Dhabi Capital.
The inflow was largely driven by institutional investors rather than retail investors, said Nomura’s Goto. Pension funds and other asset managers likely bought equities aggressively, while Japanese bond purchases were largely driven by reserve managers, life insurers and also pension funds, according to Nomura.
“It was quite an exceptional month, when you consider everything that has happened in the global macro economic environment,” said Kei Okamura, Neuberger Berman’s MD and Japanese equities portfolio manager.
“That obviously had an impact in the way global investors were thinking about the asset allocation towards the U.S … they needed to diversify,” he told CNBC in a phone call.
The road ahead
Al Dhabi Capital’s Garg expects inflows to slow down given the breakthrough in U.S.-China tariff talks, and also as deals with other countries are likely. Britain in fact became the first country to ink a deal with the U.S. last week.
While historic monthly inflows may not continue, market watchers still have a positive outlook on Japanese assets and continue to see strong inflows.
Trump’s unprecedented actions and policy flip-flops have dented U.S. credibility and confidence in its assets, and this could still result in global fund managers investing less in the U.S. markets in favor of others, explained Vasu Menon, OCBC’s managing director of the investment strategy team.
“Given such a backdrop, demand for Japanese assets may remain healthy even if it is not as a strong as the April level,” he said. Japan’s ongoing talks with the U.S. with regards to tariffs have also raised some optimism over cutting the 24% “reciprocal” tariffs on Japan, Menon said.
Japanese shares will also benefit from the Tokyo Stock Exchange’s corporate governance reforms, which has prioritized shareholder returns, Asset Management One International wrote in note.
The TSE’s corporate governance reforms, which kickstarted in March 2023, warrant listed companies whose shares trade below a price-to-book ratio of one to “comply or explain.” The initiative aims to boost Japan Inc.’s appeal to both foreign and domestic investors.
This reform program has led to likely record levels of share buybacks in Japan, which improves both earnings per share and support share price, Asset Management One International said.
While the dollar has regained some strength following April’s sell-off, the potential for it to weaken further and the Japanese currency to strengthen “makes sense” for investors to look at Japanese equities especially as the economy rebounds, said Neuberger Berman’s Okamura.
“So this trend has legs. Japan will likely continue to see good flows,” Okamura said.
Morningstar’s equity research analyst Michael Makdad sees more net inflows into Japanese equities than in the past decade amid the improved corporate governance.
That said, he does not see the same heft of net inflows into short-term Japanese Treasury bills as when the Bank of Japan was implementing negative interest rates as the arbitrage opportunity for some foreign investors that existed then is no longer present now.