Japanese investors reduced their exposure to overseas stocks in May, registering the largest net exit from foreign equities in roughly five years, official data show. The Ministry of Finance reported a net divestment of 2.72 trillion yen in foreign stocks during the month, marking the biggest monthly outflow since April 2021.
The selling pressure coincided with a decline in the MSCI World Index from a recent peak. The index had reached a record 1,138.3 last week but was down about 2.9% so far this month, a move that followed a strong U.S. jobs report and prompted profit-taking in high-flying, AI-linked technology shares.
Investors did not exit overseas markets altogether. Instead, the allocation shift favored foreign debt. Net purchases of foreign debt securities totaled 2.9 trillion yen in May, the largest monthly inflow into overseas bonds since May 2025.
The breakdown of flows across account types reveals different behavior within Japan’s investor base. Trust accounts were substantial sellers of foreign equities, offloading a net 3.38 trillion yen, while simultaneously increasing their holdings of overseas bonds by 3.16 trillion yen. In contrast, other institutional segments continued to support equity purchases abroad: investment trust management companies bought a net 614.6 billion yen of foreign stocks in the month, and life insurers added 77.5 billion yen.
Additional data from the Bank of Japan covering the first four months of this year show ongoing demand for specific regional equities. Japanese investors purchased 1.91 trillion yen of U.S. stocks and 826.4 billion yen of European stocks in that period. Purchases of British and Spanish equities amounted to 285.5 billion yen and 80.1 billion yen, respectively, over the same four-month span.
Taken together, the figures illustrate a rotation in overseas allocations during May - away from foreign equities overall and toward foreign fixed income - against a backdrop of geopolitical caution and a pullback in recent technology-led gains. ($1 = 160.2000 yen)
Data sources cited in this report:
- Ministry of Finance net monthly flows for May
- Bank of Japan purchases by region for January-April