NISA yen selling pressure continues, while pension and life insurer repatriation becomes potential support

Overview

The report tracks Japan's cross-border securities investment in July 2026 and balance of payments data for June 2026, focusing on fund flows by banks, trust accounts, life insurers, investment trusts, and foreign investors. The core tension is that NISA-related purchases of foreign equities continue to create yen selling pressure, while pension rebalancing, life insurers' reductions of unhedged foreign bonds, and higher FX hedge ratios could generate yen buying.

Core views

Japanese residents as a whole still net bought foreign securities in July, but behavior diverged significantly across investor types. Investment trusts' net purchases of foreign equities reached the highest level since the launch of the new NISA, showing that structural yen selling by the household sector remains strong. Meanwhile, trust accounts, used as a proxy indicator for pension fund flows, still posted large net sales of foreign equities despite the decline in foreign equities in yen terms, possibly unwinding a slight overweight relative to the GPIF policy portfolio; however, one month of data is insufficient to prove that they are positioning in advance for a policy portfolio adjustment. Life insurers have not yet materially reduced unhedged foreign bonds in line with annual plans, but yen appreciation at end-July may change their subsequent behavior. Foreign investors preferred Japanese equities and avoided Japanese medium- to long-term bonds, reflecting asset divergence driven by improved corporate earnings and rising long-end JGB yields.

Analysis framework

The report combines international securities transaction statistics, balance of payments data, investor-type breakdowns, GPIF portfolio weight estimates, benchmark index valuation changes, and high-frequency subscription data for publicly offered foreign equity funds to compare net purchase and sale amounts, historical levels, and deviations from policy portfolios, thereby assessing the potential impact of related fund flows on the yen, Japanese equities, and Japanese bonds.

Methodology notes

• Fund flow analysisInvestor breakdown of cross-border securities transactions

  Break down net securities purchases and sales by banks, trust accounts, life insurers, investment trusts, and foreign investors.

  By comparing net equity and bond flows across investor types, the report identifies the different impacts of household allocation, pension rebalancing, insurance fund management, and foreign investor behavior on the yen.

• Asset allocation analysisGPIF policy portfolio deviation and rebalancing estimate

  Compare estimated GPIF portfolio weights with policy portfolio target weights.

  The report conducts scenario estimates based on portfolio weights at end-June 2026, trust account fund flows in July, and benchmark index valuation changes, assuming that 50%, 75%, or 100% of trust account transactions came from GPIF.

• High-frequency monitoringTracking of NISA-related fund subscriptions

  Use subscription data for major investment trusts and publicly offered foreign equity funds to assess the strength of household overseas allocation.

  Concentrated subscriptions around the third business day of August were slightly higher than in the same period of 2024, supporting the judgment that net inflows into foreign equities remain strong and household yen selling continues.

• Macro analysisBalance of payments breakdown

  Explain changes in Japan's cross-border capital and current account from the components of trade, direct investment, and securities investment.

  The report mainly attributes the narrowing of the current account surplus to deterioration in the trade balance, and assesses medium-term yen depreciation pressure through changes in direct investment net outflows.

Asset mapping & comparison

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

• Japanese yen (JPY)

  NISA overseas equity purchases create yen selling pressure, while life insurers' reductions of overseas assets, higher FX hedging, and pension fund repatriation create yen buying.

  Strengths

  Life insurers' potential reduction of unhedged foreign bonds, narrower direct investment net outflows, and pension rebalancing may ease depreciation pressure.

  Weaknesses

  Continued strong inflows into foreign equity funds, a narrower current account surplus, and household overseas allocation still constitute structural selling pressure.

  Comparison

  Short-term selling pressure has already been confirmed by NISA data, but fund repatriation and increased hedging are still mainly potential scenarios.

  Risks

  FX intervention, changes in insurance company plans, GPIF policy adjustments, and U.S.-Japan interest rate expectations may quickly change the direction of flows.

• Japanese equities

  Foreign investors made large net purchases of Japanese equities in July.

  Strengths

  Upward revisions to Japanese corporate earnings expectations may increase their attractiveness relative to other East Asian markets.

  Weaknesses

  Single-month inflows may be affected by market sentiment and exchange rate changes, and sustainability remains to be verified.

  Comparison

  Foreign investors bought Japanese equities while selling Japanese bonds, showing clear divergence in asset preference.

  Risks

  Downward revisions to earnings expectations, a decline in global risk appetite, or rapid yen appreciation may weaken inflows.

• Japanese government bonds

  Foreign investors net sold Japanese bonds in July, but repatriation by pension or life insurance funds may increase domestic demand.

  Strengths

  If overseas bond funds are repatriated domestically, this may create new allocation demand.

  Weaknesses

  Rising and more volatile long-end yields are suppressing foreign investor demand.

  Comparison

  Japanese bond fund flows performed weaker than Japanese equities, which received overseas net purchases during the same period.

  Risks

  The scale of policy portfolio adjustment falls short of expectations, yields continue to rise, or foreign investors further reduce holdings.

• Foreign equities

  Investment trusts made large net purchases, while trust accounts and life insurers net sold.

  Strengths

  The new NISA is driving long-term overseas asset allocation by households, and August high-frequency data still show strong subscriptions.

  Weaknesses

  Pension funds and life insurers may continue reducing holdings due to rebalancing, exchange rate changes, or risk management.

  Comparison

  Investment trusts' JPY1.2tn net purchases exceeded the net sales of about JPY1tn by trust accounts and JPY311bn by life insurers.

  Risks

  A global equity market correction, yen appreciation, and changes in GPIF allocation may depress subsequent demand.

• Foreign bonds

  Banks continued to net sell, trust accounts made large net purchases, and life insurers only net sold slightly.

  Strengths

  Trust accounts net bought JPY896bn in July, keeping Japanese investors overall net buyers of foreign bonds.

  Weaknesses

  Rising Japanese yields, concerns about Fed rate hikes, and FX risk have reduced some institutions' willingness to allocate.

  Comparison

  Banks and life insurers were cautious, but demand from pension-related trust accounts was relatively strong.

  Risks

  Bond market volatility, currency appreciation, hedging costs, and changes in interest rate policy may trigger larger reductions in holdings.

• Crude oil

  A rebound in crude oil import volumes increases pressure on Japan's trade deficit, while lower oil prices can partially offset the volume impact.

  Strengths

  If the situation in the Middle East improves and pushes oil prices further lower, Japan's import costs and current account pressure are expected to ease.

  Weaknesses

  Progress in alternative supply may first bring an increase in import volumes, widening the short-term trade deficit.

  Comparison

  Higher import volumes and lower prices have opposite effects on Japan's trade balance.

  Risks

  The situation in the Middle East, supply disruptions, and a rebound in oil prices may again worsen Japan's terms of trade.

Key data

• Japanese investors' net purchases of foreign securities in JulyJPY535bnNet purchases of foreign equities were JPY170bn, and net purchases of foreign bonds were JPY366bn.
• Trust accounts' net sales of foreign equities in JulyAbout JPY1tnLarge sales still occurred during a period when foreign equities declined on a yen-denominated benchmark basis, possibly reflecting the unwinding of an overweight.
• Trust accounts' net purchases of foreign bonds in JulyJPY896bnThis diverged clearly from the large net sales of foreign equities.
• GPIF foreign equity weight25.3%As of end-June 2026, this was 0.3ppt above the 25% policy portfolio target.
• Investment trusts' net purchases of foreign equities in JulyJPY1.2tnThe highest level since the new NISA was launched in 2024.
• Banks' net sales of foreign bonds in JulyJPY209bnThe seventh consecutive month of net sales; total foreign bond trading activity exceeded JPY10tn for the first time in three months.
• Life insurers' net sales of foreign equities in JulyJPY311bnLife insurers net sold only a small JPY11bn of foreign bonds during the same period.
• Foreign investors' net purchases of Japanese equities in JulyJPY1.3tnThe first net purchase in two months, possibly driven by upward revisions to Japanese corporate earnings expectations.
• Foreign investors' net sales of Japanese bonds in JulyJPY1.3tnRising long-end JGB yields may have suppressed overseas investment demand.
• Japanese investors' net sales of U.S. bonds in JuneJPY761bnDuring the same period, they net sold JPY520bn of Australian bonds and net bought JPY457bn of French bonds.
• Japan's current account surplus in JuneJPY1.4tnBelow May's JPY3.1tn, with the trade balance deteriorating by JPY785bn and turning into deficit.
• Japan's direct investment net outflows in JuneJPY1.6tnSignificantly narrower than May's JPY3.2tn.

Impact & implications

The direction of the yen depends on the relative strength of structural overseas allocation and potential fund repatriation. Continued NISA purchases of foreign equities mean the household sector is still selling yen; if life insurers reduce unhedged foreign bonds or raise FX hedge ratios, this would create yen buying. Large sales of foreign equities by pension trust accounts may also support expectations of fund repatriation, but at present it cannot be confirmed that this is policy-driven reallocation. Japanese equities may continue to benefit from improved earnings expectations and overseas inflows, while Japanese medium- to long-term bonds face pressure from overseas selling and long-end yield volatility.

Risks

• Single-month fund flows are volatile, and July data cannot confirm that GPIF has begun positioning for future policy portfolio adjustments.
• Trust accounts are not a perfect corresponding indicator of GPIF fund flows, and the related attribution depends on scenario assumptions such as 50%, 75%, and 100%.
• Life insurers previously announced reductions in unhedged foreign bonds, but as of July there had been no significant net sales, so subsequent actions remain uncertain.
• Changes in NISA fund flows, FX intervention, and U.S.-Japan interest rate expectations may cause yen fund flows to reverse rapidly.
• Opposite movements in crude oil import volumes and prices create considerable uncertainty for the outlook of Japan's trade balance.
• Foreign investors' preference for Japanese equities depends on improved corporate earnings, and a reversal in earnings expectations may weaken inflows.

What to watch

• Whether life insurers start reducing unhedged foreign bonds or raising FX hedge ratios in August 2026.
• July public and corporate bond transaction statistics and pension fund yen bond transactions to be released on August 20, 2026.
• Whether high-frequency subscriptions to NISA-related publicly offered foreign equity funds remain strong.
• Foreign equity flows through trust accounts and whether GPIF portfolio weights move closer to or below policy targets.
• Whether foreign investors' divergent trading in Japanese equities and medium- to long-term JGBs continues.
• The subsequent impact of crude oil import volumes, international oil prices, and Japan's trade balance on the current account.
• U.S.-Japan policy signals, long-end JGB yields, and yen trends after FX intervention.