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Yen Weakens as Investors Flock Overseas
5 Jan
Summary
- Japanese retail investors sold ¥3.8 trillion in domestic stocks by November 2025.
- Retail investors are showing a strong appetite for overseas stocks, buying ¥9.4 trillion.
- The yen's weakening is attributed to fund outflows and lower interest rates.
- Major banks predict the yen will weaken further against the dollar.
Japanese retail investors have significantly shifted their investment strategies, divesting ¥3.8 trillion ($24.3 billion) in domestic stocks and related trusts by November 2025. This represents the largest outflow in over a decade, occurring even as the Topix index surged approximately 25% in 2025. Instead, investors have maintained a strong appetite for foreign equities, with net purchases via investment trusts nearing the record ¥9.4 trillion set in 2024.
The substantial flow of funds out of Japan is exerting downward pressure on the yen. This trend is further influenced by potential interest rate hikes from the Bank of Japan and increased government fiscal spending aimed at economic stimulation. The exodus runs contrary to policymakers' goals of encouraging household investment in domestic companies to foster economic growth and increase returns.
Analysts predict further yen depreciation, with some expecting it to reach 160 per dollar by the end of 2026. This forecast is driven by structural factors, including a significant bond yield gap with the United States. However, a potential slowdown in the AI rally could prompt a reassessment, leading some investors to consider diversifying back into domestic equities.
