Overseas investors turn sellers in Japan


The stock selling in Japan has affected the yen, and U.S. investors have strengthened the dollar by pulling funds back home

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan (CNN) -- Overseas investors turned sellers of Japanese stocks in July, offloading a net 402 billion yen ($3.4 billion) in equities for the month.

That's the first time since February they've sold more than they've bought, data from ministry of finance figures showed on Thursday.

Overseas investors were still buying Japanese stocks in June and bought heavily in May, purchasing 940 billion yen ($7.9 billion) of shares.

But the tide turned in mid-June, as U.S. investors hurried to send money back to the United States to offset losses there.

"U.S. investors were pulling back somewhat, and that was one of the drivers for the recent backup in the dollar," Ryo Hino, an economist with J.P. Morgan, said.

Driving the yen

The flow of funds back into U.S. markets and out of Japan has strengthened the dollar and weakened the yen.

The yen stands at 119.72 on Thursday morning in Tokyo, having been as strong as 115 in the middle of July.

The pace of the overseas selling in Japan picked up sharply in the last week of July, which accounted for 227 billion yen of net sales -- more than half of the total for the month.

U.S. investors have likely been moving money back to the United States to offset stock losses and to cut down on risk, after a series of high-profile bankruptcies there.

Japan still buying abroad

The collapse of telecom stock WorldCom will have caused many U.S. investors to become more cautious both at home and abroad, market watchers say.

Japanese investors continue to be heavy buyers of overseas investments, mainly U.S. Treasuries. Net, they bought 2.4 trillion yen ($20.3 billion) in overseas bonds and 767 billion yen ($6.4 billion) in overseas stock.

Public pension funds were likely behind the bulk of the bond buying, with exporters and insurance companies looking to avoid the currency risk involved with overseas bonds.