Global investors turn cautious on once-favourite Japanese stocks

Japan's record share market rally earlier this year is looking like a distant memory as foreign investors sell off stocks in a sluggish economy.

Citigroup and abrdn are among banks that have turned more pessimistic toward the nation's equities as the outlook for corporate governance reform and the Bank of Japan's (BOJ) monetary policy remains uncertain. A fund manager survey by Bank of America showed about a third of respondents believe the market has peaked.

Foreign investors, who helped push up Japanese shares to a record high just a few months ago and beat overseas peers, became net sellers for a fourth straight week through June 14. That was the longest streak since September, according to Tokyo Stock Exchange data.

Japan's blue-chip Nikkei 225 index has stalled since reaching an all-time high on March 22. It's dropped 5.6 per cent since then, compared with alpercent gain during the period for the MSCI AC Asia Pacific Index, and a 4.4 per cent advance in the US's surging S&P 500 Index.

"The early optimism for Japanese stocks this year is clearly hitting a speed bump," said Hebe Chen, an analyst at IG Markets Ltd.