Japanese investors return to foreign long-term bonds as tech selloff drives defensive shift

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Japanese investors return to bonds

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Japanese investors bought a net 1.31 trillion yen of foreign long-term bonds in the week ended October 31, reversing six weeks of outflows totaling 3.51 trillion yen.
Foreign investors purchased 2.36 trillion yen of Japanese bonds, the highest since March 21, with 1.48 trillion yen in long-term and 874.7 billion yen in short-term issues.
The Nasdaq Composite Index slid 5.52% Thursday and Japan's Nikkei dropped 6.14% this week, while Japanese investors net bought 1.08 trillion yen of foreign stocks and foreigners bought 1.13 trillion yen of Japanese stocks.

Cross-border flows shift after market volatility

As reported by Reuters, data from Japan's Ministry of Finance show Japanese investors bought a net 1.31 trillion yen of foreign long-term bonds in the week ended October 31, reversing a six-week stretch in which they had withdrawn a combined 3.51 trillion yen. They nevertheless sold a net 209.3 billion yen of foreign short-term bills.

The move comes as investors look for safety after the Federal Reserve holds interest rates steady and the AI-driven equity trade weakens on disappointing earnings from several major companies. Earlier concerns about rising energy costs and government debt also fade as market attention turns to the technology selloff and the possibility of funds moving back into Japan.

Foreign investors also step up purchases of Japanese debt, putting 2.36 trillion yen into Japanese bonds, the largest amount since March 21. That total includes 1.48 trillion yen in long-term bonds and 874.7 billion yen in short-term bills.

Equity losses test sentiment in Japan and abroad

The U.S. tech-heavy Nasdaq Composite Index falls 2% last week after Amazon.com and Alphabet report sharp cash outflows, while Intel warns it will burn cash this year. The index then drops a further 5.52% on Thursday as investors react to fears of tougher AI regulation after Democrats win control of the U.S. Congress.

Japan's Nikkei loses about 6.14% so far this week, underscoring the broader pressure on risk assets. Even so, Japanese investors buy a net 1.08 trillion yen of foreign stocks last week, extending their run of weekly net purchases to three weeks, while foreign investors buy a net 1.13 trillion yen of Japanese stocks for a second straight week.

Despite the latest rebound in bond buying, Japanese investors still withdraw a net 4.38 billion yen from foreign fixed-income instruments so far this year. That remains the largest outflow for the same period since 2022, suggesting caution toward overseas debt has not fully disappeared.

In our earlier coverage of the Nasdaq 100 selloff, we noted that the index stayed under heavy selling pressure despite upbeat earnings momentum and continued investor interest in AI. The piece highlighted a market stuck below key short- and medium-term moving averages, with analysts watching whether support levels would hold or open the way to deeper losses. That tech-driven risk-off tone provides useful context for the current shift in cross-border flows as investors reassess exposure after renewed volatility.

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