Fear that Prime Minister Shinzo Abe's stimulus policy will fail has become investors' second-largest tail risk after China, Bank of America Merrill Lynch said in its fund manager survey report for June.

Fund managers turn bearish on Japan: BoA Merrill Lynch survey


According to the survey, a net 21 percent of asset allocators are worried about the possible failure of “Abenomics,” while a net 31 percent expect the Chinese economy to slow down.

“Everything that we are seeing for the survey is that positions have lowered for Japanese equities” after eight months of rising, said Manish Kabra, a European equities strategist at BoA Merrill Lynch Global Research.

The proportion of asset allocators overweighing Japanese equities fell to a net 17 percent from a net 31 percent in May, a seven-year high, and that of investors viewing Japan as the region they most want overweight dropped to a net 16 percent from 25 percent, the survey showed.

The Abenomics fear “interrupted the strong run in Japanese equities,” the report said.

But Kabra pointed out that investors remain bullish on the Japanese economy in the long run.

“There is no hint that investors have capitulated on Japan,” he said. “What we are seeing currently is more of a short-term market volatility.”

A total of 248 fund managers participated in the survey conducted from June 3 to 7.