Foreign investors bought a net 956 billion yen (S$8.68 billion) of Japanese stocks last week, their biggest purchase since early June, data from the Tokyo Stock Exchange showed on Thursday (Jan 18).

International demand has helped Japanese shares extend their outperformance versus other major equity markets into the new year.

The blue-chip Nikkei 225 Stock Average rose 6.6 per cent last week, the biggest weekly gain since March 2022, adding to an annual advance of 28 per cent. Retail Japanese investors sold into the rally, offloading 1.07 trillion yen of cash equities in the same week, the biggest since November 2013.

Both the Topix index and Nikkei 225 have reached their highest levels in 34 years, thanks to bullish factors such as a weaker yen, negative interest rates and the exchange’s push to improve corporate governance. 

The Nikkei 225 may be headed for 40,000 as shares test record highs through the middle of the year, Hikaru Yasuda, the chief equity strategist at SMBC Nikko Securities, wrote in a note. While the gauge’s recent advance resembles the April-June 2023 rally, momentum is stronger and suggests overseas pension funds and sovereign funds are playing a “long game,” Yasuda wrote.

The Nikkei 225 was little changed from the previous trading session, closing at 35,466.17 on Thursday in Tokyo. BLOOMBERG

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