Korean investors exit Japanese market amid economic slowdown

A banknote of Japanese yen [REUTERS/YONHAP]

The weak Japanese yen lured Korean investors into Japan’s stock market throughout the summer. Yet the trend is now losing steam, with the world’s third-largest economy showing signs of a slowdown and its currency policy adding uncertainties to the market.

Korean investors’ net purchases of Japanese stocks amounted to $84.12 million in September, a 23.8 percent decrease from the previous month, according to the Korea Securities Depository. Compared to this year’s peak of $153.88 million in July, the net figure dropped by 45.3 percent.

Korean investors flocked to the Japanese stock market earlier this year in anticipation of potential foreign exchange profits and a bullish market driven by economic rebound, but the heat has now died down.

The main reason behind the slumping investor sentiment is Japan’s not-so-rosy economic indicators.

Though the country logged an expectation-beating growth rate of 1.5 percent in the second quarter, other economic indicators painted a less optimistic picture. Consumer spending, which accounts for more than half of the gross domestic product (GDP), shrank 0.5 percent compared to the previous quarter. Corporate capital expenditures (capex) inched up only 0.03 percent during the same period.

“As Japan’s industrial production stagnated in the second quarter amid the weakening of the global manufacturing sector, real consumer spending declined due to the 2 to 4 percent decrease in real wages,” said Lee Da-eun, an analyst at Daishin Securities.

“Despite logging an expectation-beating growth in the second quarter, what is behind the figure is a recessionary surplus accompanied by a shrinking domestic economy,” said Lee.

The growing possibility of interest rate hikes is also driving investors away. While the Bank of Japan is not likely to go as hawkish as the U.S. federal bank, there is still a possibility for the country to finally raise its base rate after pursuing an ultraloose monetary policy for more than a decade, if the inflation continues to surge amid high fuel prices.

“The economic outlook for Japan was optimistic until last year, but now people are having reservations,” said Jeong Yong-taek, an analyst at IBK Securities, adding that “there are no signs of capex improving, and the growing uncertainties in monetary policy are also not a good sign.”

BY KIM DO-NYUN [shin.hanee@joongang.co.kr]