Reuters reported today that based on Tokyo Stock Exchange weekly data, foreign investors were once again net buyers of Japanese stocks for the 23rd consecutive week. The total amount of buying has now reached an all-time high on an annual basis.
So far this year, foreign investors have snapped up a net 9.44 trillion yen ($79.38 billion) of stocks on the Tokyo, Osaka and Nagoya exchanges, surging past the previous record of 9.13 trillion yen set in 1999.
The banking industry sub-index has surged 50 percent so far this year, compared with a 33 percent advance by the broad TOPIX index and a 29 percent gain by the Nikkei share average.
The iShares MSCI Japan Index ETF (ticker: EWJ) is up 17.5% on the year, considerably lower than the 29% gain by the Nikkei, because of the weakening yen against the U.S. dollar. Had Warren Buffett been correct in his bet against the U.S. dollar, holders of EWJ may have seen even better returns. However, the yen is now at 2+ year lows against the dollar. Keep in mind that the weak yen has meant increased (currency conversion) profits for the exporters.
The one area that, if improved, could boost Japan easily for the entire 2006 calendar year on into 2007, would be if domestic investors start feeling the bullish vibe foreign investors have for Japan. Although individual Japanese investors were net sellers this week, "unloading a net 243.06 billion yen of Japanese stocks," they were net buyers last week. I am more optimistic on the domestic Japanese investors buying into domestic stocks now than I have been in past months and years because of the change in attitude among corporations now paying more attention to shareholders concerns, and the nice increases in dividends and share buybacks. For these reasons I expect continued gradual increases by domestic buyers, that like I said, will be a huge stimulus to domestic stocks in addition to the strong foreign buying we have been witnessing.