Why are foreign investors selling Japanese stocks for nine consecutive weeks?

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Foreign Investors Divesting Japanese Stocks Amid Tariff Concerns and Yen Strength

Foreign investors have been net sellers of Japanese stocks for nine consecutive weeks, a trend extending for the longest period in three years, through to March 29. This sustained divestment is primarily driven by anxieties surrounding potential disruptions to Japanese exports stemming from United States reciprocal tariffs. The Nikkei index has reflected these concerns, experiencing a significant drop of as much as 4.6 per cent to an eight-month low of 34,102.00.
US Tariffs Impacting Japanese Exports

A key catalyst for the foreign sell-off is the imposition of United States tariffs on Japanese goods. Specifically, US President Trump announced a higher-than-anticipated 24 per cent tariff on Japanese products. Furthermore, a pre-existing 25 per cent tariff on auto imports, scheduled to take effect on April 3, poses a significant threat to the Japanese automotive sector, a major component of the nation's export economy.
Significant Capital Outflow from Japanese Equities

The scale of foreign investor withdrawal is substantial. For the week ending March 29, foreigners offloaded Japanese stocks on a net basis amounting to ¥450.4 billion (approximately RM13.6 billion). This recent outflow is part of a broader nine-week selling streak that began on January 26, during which foreign investors have collectively withdrawn ¥6.47 trillion from the Japanese equity market. This contrasts sharply with the previous nine-week selling streak ending March 26, 2022, which saw total net withdrawals of ¥3.89 trillion.
Broader Economic Pressures Including Yen Appreciation

Beyond direct tariff impacts, analysts suggest that a strengthening yen is adding further pressure on Japanese exports, consequently influencing investor sentiment. The yen's appreciation, often driven by safe-haven demand during periods of global uncertainty, makes Japanese goods more expensive for foreign buyers, thereby potentially dampening export volumes. This economic headwind further exacerbates concerns for foreign investors.
Diversified Selling Across Asset Classes

The divestment by foreign investors is not confined solely to equities. In the week ending March 29, foreign investors also reduced their exposure to Japanese bonds. They sold long-term bonds valued at ¥489.7 billion and short-term bills amounting to ¥155.8 billion, indicating a broader deleveraging from Japanese assets in response to the prevailing economic concerns.

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Why are foreign investors selling Japanese stocks for nine consecutive weeks?

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