The catalyst for the recent corrections in Tokyo share prices was selling by foreign investors.
The balance of supply and demand on the Tokyo stock market has come under the strong influence of sales by foreign investors who became net sellers in the third week of March.
Net sales by them since then through the first week of June topped 2.2 trillion yen, the highest figure since 1990.
But a closer look at their activities in April and May reveals that European investors bought more Japanese shares than they sold by 268.8 billion yen, while U.S. investors scored a selling excess of 1.865 trillion yen.
Although sales by U.S. investors are overwhelming, purchases by foreign investors as a whole remain comparable with those of 1999, which exceeded sales by an average 130 billion yen per month.
The current round of stock price corrections worldwide stemmed from the volatility in the U.S. markets, especially the Nasdaq over-the-counter market, where the price index fell more sharply than those in other markets.
The Nasdaq composite index plunged 37 percent from its high and the Dow Jones industrial average fell 16 percent. Falls were slower in major European markets. For example, the Financial Times Stock Exchange 100 Share Index dropped 13 percent in London, the DAX Index 15 percent in Frankfurt and the CAC 40 Index 7 percent in Paris.
If sales by foreign investors are attributable to position-squaring following falls in U.S. stocks, there is a possibility that they will slow sales of Japanese shares and even become net buyers when stock prices regain stability.
U.S. stocks are being greatly affected by the U.S. Federal Reserve’s monetary stance. Effects of successive interest rate increases by the Fed are starting to be felt, while November’s presidential election is approaching.
Under these circumstances, the Fed is expected to shun another rate hike until the Federal Open Market Committee meeting in August.
In the previous tight-credit periods of 1988-1989 and 1994, stock prices touched bottom eight to 13 weeks before the last rate hikes.
A major turning point appears nearing in the U.S. stock market.