Investors turn to Japan as U.S. markets face turbulence

In April 2025, Japan witnessed a historic influx of overseas capital, with foreign investors purchasing 8.21 trillion yen, approximately $56.6 billion, in its equities and long-term bonds. This marked the largest net inflow for Japan since the finance ministry began tracking such data in 1996. The spike in investments followed the announcement of reciprocal tariffs by former President Donald Trump, prompting concerns over the U.S. economy and asset performance. Analysts suggested that the ensuing volatility in U.S. markets urged investors to diversify their portfolios, leading them toward more stable alternatives like Japanese assets. Kei Okamura of Neuberger Berman noted that the inflows were concentrated shortly after the tariffs were announced, with Japan's 10-year treasury yield declining concurrently by 21 basis points. This occurred while the U.S. counterpart saw a significant yield increase, signaling a shift of interest from American to Japanese markets among foreign investors. The Nikkei 225 index also performed well during this period, gaining over 1%, in contrast to a fractional decline observed in the S&P 500. Market experts assert that Japan’s robust corporate governance reforms, which began in March 2023, have made its market more attractive to both domestic and international investors. The reforms aim to improve shareholder returns and enhance transparency among companies listed on the Tokyo Stock Exchange. Such initiatives promise to sustain interest in Japanese equities beyond the exceptional levels seen in April 2025. Although a temporary easing of U.S.-China trade tensions may stabilize some of the markets, optimism remains high regarding Japan's economic outlook. In light of the recent changes, investment strategists recommend diversifying asset allocations, especially for those overly concentrated in U.S. stocks. With the global investment landscape shifting, there is a notable emphasis on incorporating international equities into portfolios. As investors increasingly recognize the merit of a diversified approach, markets like Japan present a compelling opportunity for stability amid ongoing geopolitical uncertainties.