NextFin News - Overseas investors turned net sellers of Japanese shares for the first time in two months last week, offloading a net 156 billion yen ($1 billion) of equities as skepticism regarding the sustainability of the artificial intelligence rally begins to outweigh Japan’s corporate reform narrative. The shift, documented in the latest exchange data for the week ending May 29, marks a sharp reversal from a buying streak that had propelled the Nikkei 225 to record highs earlier this spring.
The selling pressure was concentrated in blue-chip technology and semiconductor-related names, which have served as the primary engine for the Japanese market’s outperformance over the past year. According to Alice French of Bloomberg, the retreat suggests that the "AI-linked industrial story" which previously drew global capital to Tokyo is facing a rigorous valuation check. While the Nikkei 225 remains up significantly on a year-to-date basis, the sudden exit of foreign capital—traditionally the most influential force in Japanese price discovery—indicates a tactical pivot toward profit-taking.
Kei Okamura, a portfolio manager at Neuberger Berman, noted that while the structural exit from deflation remains a potent long-term catalyst, the immediate enthusiasm for AI-related hardware may have overextended itself. Okamura, who has maintained a constructive but disciplined stance on Japanese equities, argues that the market is now entering a phase where "positive real interest rates filtering through the economy" must do the heavy lifting, rather than speculative tech fervor. His view reflects a growing sentiment among institutional managers that the "easy money" made on the semiconductor equipment trade has likely peaked.
This cautious outlook is not yet a universal consensus. Bank of America strategists recently raised their year-end forecasts for Japanese equities, maintaining that Japan’s indispensable role in the global AI supply chain—providing essential materials and components—provides a fundamental floor that distinguishes it from previous speculative bubbles. However, the divergence between bullish sell-side forecasts and the actual flow of funds suggests that the "AI bubble" narrative is gaining enough traction to trigger significant de-risking among hedge funds and large-scale asset managers.
The volatility is further complicated by the macroeconomic backdrop. U.S. President Trump’s administration has maintained a focus on trade balances, and any perceived weakness in the yen that bolsters Japanese exports could invite renewed political scrutiny. For investors, the risk is no longer just about whether AI chips will sell, but whether the Japanese fiscal and monetary policy mix can support these valuations as the global liquidity environment tightens. The recent 156 billion yen outflow may be small relative to the trillions that entered earlier this year, but it serves as a clear signal that the period of uncritical accumulation has ended.
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