Record foreign buying of Japan stocks fails to halt yen’s slide

Overseas investors poured a net 10.93 trillion yen into Japanese equities in the first half of 2026, shattering the previous half-year record of 8.3 trillion yen set during the Abenomics boom of 2013, according to a report by the Nihon Keizai Shimbun. Yet the yen has continued its relentless slide, hitting a 40-year low against the dollar near 162.5 in late June — a paradox that underscores how modern financial engineering can sever the traditional link between capital inflows and currency strength.mk+2

A Hedge-Fueled Disconnect

The explanation lies in how global investors are accessing Japanese stocks. Rather than buying yen outright to purchase Tokyo-listed shares, many institutional investors and hedge funds are using currency-hedged instruments — ETFs, forwards, and swaps — that allow them to capture Japanese equity returns while neutralizing yen exposure. Products such as the iShares Currency Hedged MSCI Japan ETF ↗ 0.58% and WisdomTree's Japan Hedged Equity Fund ↗ 0.66% have seen strong demand as the yen weakens, effectively recycling dollar inflows without generating the currency buying that would normally support the yen.finance.yahoo+2

This dynamic means record equity inflows are not translating into yen demand in the foreign exchange market. The yen's decline to levels not seen since 1986 has been compounded by widening interest rate differentials, with the U.S. Federal Reserve holding rates steady while geopolitical tensions in the Middle East have pushed expectations for cuts further out.cnn+1

What's Driving the Inflows

The buying spree, which was five times the first-half total of the prior year and double the full-year 2025 figure of 5.4 trillion yen, has been fueled by enthusiasm for AI-related semiconductor stocks and ongoing corporate governance reforms. The Nikkei 225 surged past 70,000 in June, gaining roughly 39 percent from a year earlier. Foreign ownership ratios rose at about 40 major Japanese firms in the fiscal year ended March 2026, with AI and chip companies like Kioxia Holdings seeing the largest increases.finance.yahoo+1

A Contrast With South Korea

The contrast with South Korea is instructive. There, persistent foreign selling has directly pressured the won, which has remained above 1,500 per dollar for more than 30 consecutive trading days — levels not seen since the 2009 global financial crisis. Unlike Japan, where hedged instruments blunt the currency impact of equity flows, South Korea's markets lack the same depth of derivative products, meaning foreign selling translates more directly into currency weakness.biz.chosun+1

Japan's Finance Minister has signaled readiness to intervene if the yen's slide becomes disorderly, but for now, the currency remains hostage to interest rate differentials rather than equity flows.cnbc+1