July JPY Fund Flows: NISA Buying Pressures, Pension Stock Sales Draw Attention

Overview

This research report tracks cross-border securities fund flows in Japan for July 2026 and balance of payments data for June. The core finding is a divergence in domestic investor behavior: on one hand, investment trusts driven by the new NISA system continue to buy large amounts of foreign stocks, exerting continuous depreciation pressure on the yen; on the other hand, trust accounts dominated by pension funds unexpectedly significantly reduced their holdings of foreign stocks, coupled with potential adjustments in hedging strategies by life insurers following US-Japan joint intervention, providing potential support for the yen. Foreign investors showed a pattern of 'buying stocks and selling bonds'. Overall, the yen's trajectory depends on the interplay between NISA outflow pressures and institutional fund repatriation/hedging forces.

Core views

The reduction in foreign stock holdings by trust accounts (pension funds) was the most surprising fund flow change in July. Although the price of foreign stocks priced in yen fell in July, theoretically triggering passive rebalancing purchases, trust accounts instead net sold 1.0 trillion JPY of foreign stocks. The report analyzes that this may be because as of the end of June, GPIF's allocation to foreign stocks was 25.3%, slightly above the 25% policy target weight, and the sales in July were likely to correct this slight overweight. While it cannot be determined from a single month's data whether pension funds are preparing ahead of time for future policy portfolio adjustments, this anomalous signal warrants high vigilance. Subsequent focus should be placed on the July public/private bond transaction statistical data released on August 20 to verify repatriation trends. NISA-related fund flows remain the primary source of depreciation pressure on the yen. In July, investment trusts net bought 1.2 trillion JPY of foreign stocks, setting a record single-month high since the launch of new NISA in 2024, while simultaneously net selling 112 billion JPY of foreign bonds. High-frequency data from early August shows that inflows into public foreign stock funds remain strong, even slightly higher than the same period in 2024. This indicates that overseas asset allocation by the Japanese household sector through NISA channels is still accelerating. The resulting persistent yen selling pressure is difficult to reverse in the short term and is the core structural factor suppressing the yen exchange rate. Life insurers' FX hedging behavior could become a new support point for the yen. In July, life insurers only net sold 11 billion JPY of foreign bonds, a reduction scale that is quite mild historically and still falls short of the goal to reduce unhedged foreign debt outlined in their FY2026 plans. However, following the joint yen-buying intervention by US and Japanese authorities on July 30, the yen appreciated significantly, which may prompt life insurers to accelerate the reduction of unhedged foreign debt positions or increase FX hedging ratios. If life insurers substantially increase hedging operations starting in August, it will bring considerable yen buying pressure and may strengthen expectations among overseas investors regarding yen repatriation. Foreign investors showed a clear 'stock-bond differentiation' in allocation. In July, foreign investors net bought 1.3 trillion JPY of Japanese stocks, marking the first net buying in two months. They persisted in increasing holdings of Japanese stocks even while reducing holdings of Taiwanese and Korean stocks, primarily driven by upward revisions in Japanese corporate earnings. On the bond side, although market participants had anticipated capital returning to the domestic bond market due to comments by Finance Minister Katayama regarding GPIF, foreign investors still net sold 1.3 trillion JPY of Japanese medium-to-long-term government bonds. This suggests that some overseas investors do not believe GPIF will massively reallocate overseas assets back to domestic bonds, and thus did not front-run Japanese bonds. Current account and direct investment data show marginal weakening in external equilibrium. Japan's current account surplus narrowed from 3.1 trillion JPY in May to 1.4 trillion JPY in June, mainly because the trade balance turned into a deficit, with imported crude oil volumes recovering and pushing up import values. However, if improved Middle East tensions lead to further declines in oil prices, this can partially offset the negative impact of increased import volumes. Regarding direct investment, net outflows narrowed from 3.2 trillion JPY in May to 1.6 trillion JPY in June. If outward direct investment remains around 2.4 trillion JPY in the coming months (lower than the monthly average of 2.9 trillion JPY in the second half of 2025), it implies that depreciation pressure on the yen via the direct investment channel is easing.

Analysis framework

The research report adopts an analytical framework of 'decomposing fund flows by investor type', breaking down Japan's cross-border securities investment data by entities such as banks, trust accounts, life insurers, investment trusts, and foreign investors to identify abnormal behaviors of various institutions and their underlying institutional or market drivers. When interpreting abnormal fund flows, the report combines institutional constraints and market environments for attribution. For example, regarding the trust accounts' counter-trend stock sales, the report inferred this was technical rebalancing rather than a strategic shift by comparing the deviation between GPIF's actual holding weights and policy target weights. For the life insurers' mild reduction, the report judged that their behavioral pattern might undergo a turning-point change by combining it with the FX intervention event. Additionally, the report emphasizes cross-validation between high-frequency data and monthly data. For the judgment on the sustainability of NISA fund flows, the report relied not only on official statistics for July but also introduced subscription data for public funds from early August as corroboration, thereby distinguishing between short-term fluctuations and mid-to-long-term structural trends.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  By separating the direction of fund flows (net buying/selling) from asset price changes (valuation effects), determine whether institutional behavior is active portfolio adjustment or passive rebalancing.

  In this report, the researchers found that trust accounts sold stocks when foreign stock prices fell, ruling out the passive rebalancing logic of 'buying when prices drop', and further inferred this was active correction of overweight weights. This method of contrasting flow data with valuation changes is a key tool for identifying the true intentions of institutional investors.

• Macroeconomic frameworkMoney-Credit Four Quadrants

  By analyzing cross-border fund flows of different economic subjects (households, financial institutions, foreign investors, government), judge the supply-demand equilibrium status of exchange rates.

  The report decomposes yen exchange rate pressure into sustained outflows from the household sector represented by NISA, potential repatriation from the institutional sector represented by life insurers and pensions, and the stock-bond differentiated allocation of foreign investors. This sector-by-sector fund flow accounting method is more precise in locating the core contradictions of exchange rate pricing than simply looking at trade surpluses.

Key data

• Net Buy/Sell of Foreign Stocks by Trust Accounts-1.0 Trillion JPYNet sold in July; unexpected sale against the backdrop of falling yen-priced foreign stock prices, possibly correcting GPIF's 0.3pp overweight
• Net Buy of Foreign Stocks by Investment Trusts+1.2 Trillion JPYLargest single-month net buy since the launch of new NISA; high-frequency data from early August shows inflow momentum continuing
• Net Buy of Japanese Stocks by Foreign Investors+1.3 Trillion JPYFirst net buy in two months, driven by upward revisions in Japanese corporate earnings
• Net Sell of Japanese Bonds by Foreign Investors-1.3 Trillion JPYMainly medium-to-long term bonds, showing foreign investors did not massively repatriate into Japanese bonds due to GPIF remarks
• Net Sell of Foreign Bonds by Banks-209 Billion JPY7th consecutive month of net selling, but total transaction volume exceeded 10 trillion JPY for the first time in three months
• June Current Account Surplus1.4 Trillion JPYSignificantly narrowed from 3.1 trillion JPY in May, mainly due to trade balance turning into a deficit
• GPIF Actual Allocation to Foreign Stocks25.3%As of the end of June, 0.3 percentage points higher than the 25% policy target

Impact & implications

For the yen exchange rate, the current fund flow landscape presents a tug-of-war state of 'support from below and pressure from above'. Sustained capital outflows driven by NISA constitute the medium-term depreciation baseline for the yen, limiting the space for significant appreciation. However, the anomalous reduction in holdings by pension funds and the potential increase in hedging ratios by life insurers after intervention provide ammunition for阶段性 rebounds in the yen. If subsequent data confirms the establishment of institutional fund repatriation trends, the yen may break free from its unilateral weakness in the short term; conversely, if NISA outflows continue to expand while institutional repatriation falls short of expectations, the yen will remain under pressure. For the Japanese bond market, the continuous net selling by foreign investors indicates that market expectations for GPIF repatriating into domestic bonds have cooled, and upward pressure on long-end interest rates may come more from domestic supply and demand than from the lack of buying pressure from foreign repatriation.

Risks

• NISA fund outflows continue to exceed expectations, exacerbating yen depreciation pressure
• Pension funds' stock sales in July were merely a one-time rebalancing, not indicating the establishment of a repatriation trend
• Life insurers' hedging adjustments proceed slower than expected, insufficiently supporting the yen
• Repeated situations in the Middle East lead to oil price rebounds, further widening the trade deficit

What to watch

• July public/private bond transaction statistical data released on August 20 to verify whether pension funds are repatriating into domestic bonds
• Foreign bond investment trends of life insurers and executive media interviews starting in August to confirm adjustments in hedging strategies
• High-frequency data on NISA-related public fund inflows in August to assess the sustainability of yen selling pressure
• Federal Reserve's future FOMC meeting statements, influencing banks' willingness to invest in foreign bonds
• Crude oil price trends and progress in alternative supplies, judging the prospects for trade balance recovery