As the long-awaited “reflation trading” gained momentum in Japan, the main driver of the rally was foreign investors. The Tokyo stock exchange reached record highs, while yields on 30-year Japanese government bonds also peaked.
The TOPIX index has risen 34.2% from its April lows, but participation from domestic investors remained limited. Analysts note that despite retail investors withdrawing $23 billion since the beginning of the year, optimism has returned in recent weeks.
Foreign fund inflows this year have been the strongest in the last ten years, while corporate share buybacks have also supported the market. Despite this, a large portion of Japanese capital still remains abroad.
The yen has been stuck in the 140-160 range for the last two years despite strong stock and bond movements. According to experts, the upward trend in Japan could strengthen further if domestic capital returns to the domestic market.
