AI Bubble Fears Intensify as Foreign Investors Turn Net Sellers of Japanese Stocks for First Time in Two Months
0xBroomberg
Foreign investors sold a net ¥395 billion in Japanese cash equities in the week to May 29, ending an eight-week buying streak; roughly 70% of Japan's 34% year-to-date rally is estimated to come from AI-linked stocks, fueling bubble concerns.
How much did foreigners sell — and why now?
Overseas investors were net sellers of about ¥395 billion (≈$2.5 billion) in Japanese cash equities, the first net outflow in two months.
The selling came right after the Nikkei 225 broke above 65,000 for the first time, snapping eight consecutive weeks of net buying.
This means → foreign money is not turning bearish on Japan's fundamentals — it is locking in gains at a record high. The faster the rally, the stronger the urge to take profit.
"70% of the rally is AI" — where does the bubble fear come from?
Pelham Smithers, managing director of Pelham Smithers Associates, estimates roughly 70% of Japan's 2026 equity gains come from AI-ecosystem stocks.
The key names driving the rally: SoftBank Group (up ~70% YTD), Kioxia Holdings (up over 630%), and Murata Manufacturing.
In plain terms = when most of a market's gains rest on a single theme, a cooldown in that theme leaves the whole index exposed — that is the essence of the bubble concern.
Where is the money going?
Smithers noted that some global investors "want to leave Japan and put money into markets like Europe that are less AI-heavy."
This reflects a rebalancing logic: not a rejection of AI's prospects, but a view that Japan's bet on AI is too concentrated and needs diversifying.
Separately, MSCI's quarterly index review removed Japan Airlines, MatsukiyoCocokara, and Sekisui Chemical, among others — passive rebalancing is also pushing capital out.
What are domestic Japanese investors doing?
In stark contrast to foreigners: Japanese institutional investors were net buyers of about ¥477 billion the same week; retail investors added another ¥106 billion.
This means → domestic and foreign capital are moving in opposite directions — foreigners trimming at the top, domestic money still stepping in.
The divergence can offset in the short term, but if foreign outflows persist, whether domestic buying alone can support the index is the key question ahead.
Content is for reference only, not financial advice.