NISA flows may have contributed to yen weakness in June

Overview

This report is Nomura's monthly JPY capital-flow monitor, focusing on Japanese investors' foreign securities investment, foreign investors' Japanese securities investment, NISA-related investment trust flows, and Japan's balance-of-payments and direct-investment data. Its core judgment is that NISA-related purchases of foreign equities may have contributed to yen weakness in June; however, related capital flows may slow after July as global equity gains moderate, the June summer-bonus effect fades, and concerns about intervention by Japanese authorities intensify.

Core views

The report identifies several main trends in June: banks continued to sell foreign bonds heavily; trust accounts rebalanced from foreign equities into foreign bonds; life insurers did not engage in large-scale sales of foreign bonds; investment trusts continued to purchase foreign equities significantly; and foreign investors sold both Japanese equities and Japanese bonds. For foreign exchange, investment trust/NISA-related purchases of foreign equities are a potentially important explanation for the acceleration in yen depreciation, although this source of support may weaken at the margin going forward. For Japanese bonds, foreign selling may reflect concerns that the BOJ is behind the curve and about fiscal expansion, but foreign investors' stance toward JGBs could improve if the government demonstrates greater sensitivity to markets.

Analysis framework

The report primarily cross-validates data from Japan's Ministry of Finance international securities investment statistics, investor-type breakdowns, NRI high-frequency public fund data, estimates of GPIF asset allocation, and Japan's balance-of-payments data. Rather than relying on a single price forecast, the analytical framework explains short-term pressure on the JPY and Japanese assets through the direction of capital flows, investor behavior, asset rebalancing, policy expectations, and changes in the balance of payments.

Methodology notes

• Capital-flow trackingCross-border securities investment analysis by investor type

  Breakdown of net securities purchases/sales by banks, trust accounts, life insurers, investment trusts, and foreign investors

  This method identifies the behavioral drivers behind capital flows by investor type. For example, banks sold foreign bonds because asset swaps became less attractive, while trust accounts sold foreign equities and bought foreign bonds for asset-allocation rebalancing.

• FX transmissionImpact of NISA-related flows on the JPY

  Purchases of foreign equities by investment trusts may create pressure to sell yen and buy foreign-currency assets

  Combining MOF data with NRI high-frequency data, the report concludes that NISA-related flows were substantial in June and uses this to explain the acceleration in yen depreciation; it also points out that purchases may slow after July.

• Asset-allocation monitoringAssessment of GPIF portfolio rebalancing

  Estimate the weights of GPIF's four major asset classes to assess whether there are signs of policy portfolio adjustments

  The report believes that domestic bonds, domestic equities, foreign bonds, and foreign equities are generally tracking allocation targets of around 25% each, with no clear signal so far that GPIF is significantly increasing its allocation to domestic bonds.

• Balance-of-payments analysisTracking the current-account and direct-investment balances

  Use the current account, trade balance, services balance, and net direct-investment outflows to assess fundamental pressure on the JPY

  The report states that the narrowing of the current-account surplus in May was mainly due to a decline in research and development services and a weakening trade balance, while outward direct investment remained above the average pace in the second half of 2025.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• USD/JPY

  Affected by NISA-related purchases of foreign equities and yen-selling pressure

  Strengths

  Substantial net purchases of foreign equities by investment trusts in June provide a capital-flow explanation for USD/JPY upside.

  Weaknesses

  Slower global equity gains after July and a fading bonus-season effect may slow related purchases.

  Comparison

  Compared with rebalancing flows from banks and trust accounts, investment trust/NISA flows provide a more direct explanation of spot FX direction.

  Risks

  Heightened concerns about FX intervention by Japanese authorities may limit further overshooting to the upside in USD/JPY.

• JPY

  Under short-term pressure from a capital-flow perspective

  Strengths

  If investment trusts continue purchasing foreign equities, the yen may remain under selling pressure.

  Weaknesses

  Slowing capital flows, intervention risks, and changes in risk appetite may ease depreciation pressure.

  Comparison

  Yen pressure comes not only from interest-rate differentials but also from sustained outflows as households and investment trusts allocate to foreign assets.

  Risks

  FX intervention, a global equity-market correction, or declining risk appetite could change the direction of capital flows.

• JGBs

  Affected by foreign selling and policy expectations

  Strengths

  If the government demonstrates greater market sensitivity, foreign investors may return to a more constructive stance.

  Weaknesses

  Foreign investors recorded net sales of JPY2.5trn in Japanese bonds in June, marking the first shift to net selling since December 2022.

  Comparison

  Pressure on JGBs is driven more by policy and fiscal expectations than by simple cross-border allocation demand.

  Risks

  Perceptions that the BOJ is behind the curve, fiscal-expansion-related headlines, and a steepening yield curve may continue to weigh on demand.

• US Treasuries

  An important component of Japanese banks' foreign bond trading

  Strengths

  Japanese investors' foreign bond purchases in May were concentrated in US bonds.

  Weaknesses

  Banks may have sold foreign bonds in June as the attractiveness of investing in US Treasuries after asset swaps declined.

  Comparison

  Compared with markets such as German bonds, US bonds remain the core of Japan's foreign bond allocation, but bank trading is more sensitive to hedging and swap conditions.

  Risks

  Further changes in US swap spreads, Fed expectations, and lower bond volatility may continue to affect bank demand.

• Foreign equities

  The primary allocation destination for investment trust and NISA flows

  Strengths

  Investment trusts recorded net purchases of JPY767bn in foreign equities in June, while NRI and leading investment trust inflow proxy indicators also pointed to strong inflows.

  Weaknesses

  MOF data were below NRI public foreign-equity fund data, possibly reflecting sales by private funds and quarter-end cash management.

  Comparison

  Compared with banks and life insurers, investment trust purchases of foreign equities more clearly reflect household demand for risk-asset allocation.

  Risks

  Slower global equity gains, fading bonus-related inflows, or a market correction could cool purchases.

Key data

• June Japanese investors' net foreign securities flowsNet sales of JPY69bnThis included net sales of JPY51bn in foreign equities and JPY18bn in foreign bonds.
• June banks' foreign securities flowsNet sales of JPY1.6trnThis included net purchases of JPY390bn in foreign equities and net sales of JPY2.0trn in foreign bonds; foreign bonds have recorded net sales for six consecutive months.
• June trust accounts' foreign securities flowsNet purchases of JPY262bnTrust accounts sold JPY1.3trn in foreign equities while purchasing JPY1.5trn in foreign bonds, which the report considers primarily a reflection of rebalancing.
• June life insurers' foreign securities flowsNet purchases of JPY70bnForeign equity purchases totaled JPY111bn, while foreign bonds recorded modest net sales of JPY41bn, with no large-scale selling of foreign bonds so far.
• June investment trusts' foreign securities flowsNet purchases of JPY647bnForeign equity purchases totaled JPY767bn, while foreign bonds recorded net sales of JPY120bn; the report believes NISA-related inflows were substantial.
• June foreign investors' Japanese securities flowsNet sales of JPY5.5trnThis included net sales of JPY3.0trn in Japanese equities and JPY2.5trn in Japanese bonds.
• May Japanese investors' foreign bond purchasesApproximately JPY3.0trnPurchases were concentrated in US bonds at JPY1.2trn, while German bonds were also notable at JPY380bn.
• May Japan current-account surplusJPY3.1trnThis was below April's JPY4.2trn but broadly close to the 2026 average of JPY3.4trn.
• May direct-investment balanceNet outflows of JPY3.3trnOutward direct investment rose to JPY3.2trn, while inward direct investment rose to JPY51bn; outward direct investment remained above the second-half 2025 average of JPY2.9trn.

Impact & implications

For the JPY, NISA-related investment trust purchases of foreign equities may have intensified yen-selling pressure in June and provide an important capital-flow clue explaining the acceleration in yen depreciation; however, this force may not continue linearly. For Japanese assets, foreign investors' simultaneous sales of equities and bonds indicate that an adjustment in East Asian technology stocks in late June, fiscal concerns, and concerns about BOJ policy jointly weighed on risk appetite. For JGBs, foreign investor sentiment could improve if government policy communication places greater emphasis on market stability. For Japan's external accounts, the current-account surplus remains intact, but the trade balance and fuel import costs pose downside risks, while continued outward direct investment warrants monitoring.

Risks

• NISA-related investment trust purchases of foreign equities may slow from July, weakening their support for yen depreciation.
• Heightened concerns about FX intervention by Japanese authorities may limit further upside overshooting in USD/JPY.
• Foreign investors' concerns that the BOJ is behind the curve and about fiscal expansion may continue to weigh on JGBs.
• An adjustment in East Asian technology stocks could trigger regional capital outflows and affect foreign flows into Japanese equities.
• At current levels, mineral-fuel import costs could pose a downside risk of approximately JPY11.0trn to nominal import projections.
• If US swap spreads, Fed expectations, or bond volatility remain unfavorable, demand for foreign bonds from banks may stay weak.

What to watch

• Whether investment trust and NISA-related flows into foreign equities slow significantly after July.
• Whether NRI high-frequency public fund data, MOF international securities investment data, and leading investment trust inflow proxy indicators remain consistent.
• Whether USD/JPY and yen cross rates trigger stronger concerns about intervention by Japanese authorities.
• The impact of BOJ policy expectations, government basic-policy language, and fiscal-related headlines on the JGB yield curve.
• Whether foreign investors shift from net sales of Japanese bonds back to increasing their JGB allocations.
• Whether Japan's outward direct investment remains above the average pace of the second half of 2025.
• The impact of the current-account surplus, trade balance, research and development services, and fuel import prices on JPY fundamentals.