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Japan equity inflows lag as investors prefer JPY and JGBs

BNY said foreign demand for Japanese equities remains subdued, and rebalancing would likely tilt toward JGBs rather than the MSCI Japan Index.

Reported · Written up by our desk · Central Banks

BNY analyst Geoff Yu said foreign demand for Japanese equities remains weaker than interest in Japanese yen (JPY) assets and Japanese government bonds (JGBs), with international investors holding positions below relevant benchmarks.

FXStreet reported that the MSCI Japan Index delivered a 22% JPY-based return in 2025, but the median gain in holdings by key international investors was 17%, showing that returns have not translated into stronger ownership.

The outlet also noted that allocation limits and Japan’s smaller role in the semiconductor and memory chip theme compared with Taiwan and South Korea have helped keep cross-border demand for equities restrained.

BNY further argued that any rebalancing is more likely to favor the JGB market, citing that Japanese equities represent the bulk of cross-border portfolio investment in Japan at 63% as of end-2025, while survey data as of end-2025 does not point to a surge flow story.

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