Life insurance companies (lifers) net sold JPY216bn ($1.4bn) of foreign bonds inFebruary, marking net selling of foreign bonds for four consecutive months (Fig. 6 ), but the size remains smaller than in 2022, when they markedly decreased their exposure to foreign bonds.
With long-term JGB yields at their highest level in about 15 years, lifers might have gradually shifted their funds from foreign bonds into domestic bonds, though it remains to beseen whether they net purchased domestic bonds in February until JSDA flow data are released around 20 March.
With the yen appreciating, market participants are focusing on whether lifers will raise their FX hedge ratio (Fig. 7 ). However, we believe they are unlikely to increase their hedge ratio significantly in the near term. As major lifers expected USD/JPY to be around140 as of late October , the yen’s recent appreciation may be largely in line with lifers’ investment plans. So, they do not seem to be moving rapidly in preparation for theyen’s appreciation unless USD/JPY tests below 140 by end-March. Moreover, as the end of the fiscal year (end-March) is approaching, they have less incentive to change their portfolio allocations markedly at this juncture.
During the same month, lifers net sold JPY227bn ($1.5bn) of foreign equities. They might have taken profits by selling foreign equities, as the end of the fiscal year (end-March) is approaching.
Investment trusts (Toshins) net bought JPY718bn ($4.7bn) of foreign equities, and netbought JPY89bn ($0.6bn) of foreign bonds in February (Fig. 8 ). Their net purchases off or eign equities declined significantly from JPY1.7trn ($10.8bn) in January, though they remain far larger than the past average before the start of the new NISA.
Even after taking account of seasonal patterns, in which Toshins’ net purchases of foreign equities have tended to decline from January to February, Toshins’ net purchases inFebruary were smaller than expected based on daily flow data tracking net inflows into public mutual funds. Although households continued to purchase foreign equities via mutual funds, some institutional investors might have prioritized taking profits by selling their private mutual funds ahead of fiscal year-end (end-March), with global stock prices weakening towards end-February.
As per daily flow data, net inflows into public foreign equity investment trusts during the first four business days of March were almost flat in comparison with the same period ofFebruary. That said, institutional investors’ possible selling of private mutual funds could limit Toshins’ overall net purchases of foreign equities in March.
Overseas investors net sold JPY2.5trn ($16.4bn) of Japanese equities in February, the largest amount since September 2024 (Fig. 9 ). In addition to concerns over US tariffs, increased market expectations for BOJ rate hikes and following the rise in JGB yields may have encouraged them to decrease their exposure to Japanese equities.
During the same period, overseas investors net purchased JPY1.8trn ($11.9bn) of Japanese bonds. With USD-hedged 10yr JGB yields (5.4% as of end-February) exceeding 10yr US Treasury yields (4.2% as of end-February), foreign investors might have judged that the return on JGBs is attractive.
