Japan's Soaring Home Bias & the Nikkei

There is massive convergence between Japanese home bias & non-Japanese investors' demand of Japanese equities. Here are the figures and the charts:

Weekly Japanese purchases of foreign stocks (red graph below) have reached a net negative ¥270 billion, which means Japanese investors were in fact net sellers of non-Japanese stocks. The figure is a slight decrease from the prior week's ¥442 billion, which is the highest reading for net Japanese selling of foreign stocks on record.Weekly Foreign purchases of Japanese stocks (white graph below) have hit a 9-year high of ¥1.12 trillion. Considering this figure is sufficiently near the 2004 record of 1.15 trillion and that foreign interest is merely starting, a new record high is imminent.

What's Different this time?

Note the 175% plunge in Japanese net purchases of foreign stocks from October 2012 to the first week of March 2013. Over the same period, foreign net inflows to Japanese stocks soared 550%.  It is no surprise that all the Nikkei's 23% rally in 2012 began in mid October, coinciding with then candidate Shinzo Abe's pre-election manifesto to reflate the economy and force the Bank of Japan into unlimited asset purchases.

Never have we seen such a massive convergence between Japanese home bias (local investors dumping foreign stocks) and surging demand in Japanese equities from abroad. Watch these flows carefully to grasp the aggressive ascent in the Nikkei-225