Global investors are piling into Japan at the fastest rate in several years, sending the stock market up 5.8% this past week to a post-financial-crisis high as the yen extended its slide.
Fueled by signs the world's third-largest economy is emerging from a recession, overseas investors bought 4.2 trillion yen ($44.3 billion) of Japanese shares over the past 16 weeks, according to government data.
The last time foreign investors poured more money into Japanese stocks was late 2006 and the start of 2007, when investors bought 5.8 trillion yen worth over 19 weeks, according to government data.
Even small domestic investors have been getting in on the market moves, with trading value from individual buyers reaching a six-year high in February and accounting for 30% of average daily volume, up from less than 20% last October, according to broker Reorient Group, which cited data from the Tokyo Stock Exchange.
Key to the changing sentiment has been the plunging yen, which hit a fresh three year-low of 95.45 per dollar Friday, helping boost Japan's big export sectors. The currency fell 2.6% for the week as investors dumped yen before Haruhiko Kuroda takes over at the Bank of Japan next month. He is widely expected to undertake aggressive action that may include "open-ended" asset-purchase programs designed to push bond yields down, boost the supply of money in the banking system and spur lending to businesses.
"Japan is in a sweet spot right now," said Paul Chan, chief investment officer for Asia ex-Japan at U.S. money-management firm Invesco. Since February, he has been buying Japanese equities and hedging his exposure to the yen's moves.
In anticipation of big central-bank purchases of government bonds, traders sent benchmark Japanese government-bond futures up to a record Friday. The 10-year yield, which moves inversely to prices, dropped to a decade-low earlier in the week.
Hedge funds have taken advantage of the huge moves in Japan and betting against the yen, including George Soros's $24 billion Soros Fund Management LLC that made close to $1 billion of paper profits last month. With the yen sinking past 95 per dollar on Thursday, many say it could keep weakening.
"The dollar could rise to as high as 97 [yen] by April 1," said Jonathan Clark, head of research at FX Concepts, a New York-based fund with $2.9 billion in assets. During this past week's bout of yen weakness, traders say speculators bought dollars around 93 to 94 yen and may consider taking profits at 96 yen before re-entering the trading.
The effect of the softer yen in Tokyo pushed the Nikkei up 2.6% to 12283.62 on Friday, a seventh day of gains and its highest close since Sept. 10, 2008, just before the collapse of Lehman Brothers during the height of the global financial crisis. It is up 18% so far this year, passing the Philippines index, which has been leading Asian gains this year. Globally, only Venezuela is higher, up 31% in 2013. Since the beginning of the current rally in mid-November, the Nikkei has surged 42%.
Exporters in Japan, in particular, benefited Friday, with apparel seller Fast Retailing, owner of the Uniqlo clothing chain and the heaviest-weighted Nikkei component, surging 9.8% to an all-time high.
Write to Jake Lee at jake.lee@wsj.com
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