There was something poetically ironic about last night's 800+ point crash in the Nikkei...
... which was saved in the last minutes of trading by what was rumored to be the latest blatant BOJ intervention: it took place right after the month in which a record number of foreigners rushed into Japanese stocks, chasing the record momentum of the Nikkei and Topix.
According to the latest data from the Japanese MOF, in October foreigners made the largest investments ever in Japanese equities in October.
First, what did Japanese investors do? Having as recently as several months ago bought up record amounts of US Treasurys, this enthusiasm has long since vanished, and local investors were net sellers of foreign long-term bonds (-¥1.43 tn) for the second straight month. However, in each month of 2017 so far, Japanese investors have remained net buyers of foreign bonds (excluding banks whose monthly transactions are volatile and also dollar funded), although the pace slowed slightly at +¥727.7 bn, according to Goldman calculations. Trust banks' investment trust accounts (including pension funds), financial services providers, and life insurers were net buyers, at a stable +¥267.5 bn, +¥659.0 bn, and +¥420.4 bn respectively.
Japanese investors were also busy buying foreign stocks: they bought a net ¥1.0 tn of foreign equities in October, and have sustained their amount of net purchases at above ¥1 tn since May.
However, what is more notable is what foreigners were doing with Japanese assets this time, and as noted above, foreign investors were net buyers of Japanese equities in October (+¥3.43 tn), after being net sellers in Aug-Sep (-¥2.65 tn). This represented the largest investment in Japanese equities in a single month since the beginning of comparable statistics in 2005. It also explains the Nikkei's unprecedented surge last month, in which the Japanese index had just one day in all of October.
Inward - outward security investments
Source: Goldman Sachs
Looking at net overall capital flows through portfolio investment in October, funds flowed in via inward security investment by ¥1.53 tn (with foreign investors net buyers of Japanese securities) and via outward security investment by ¥334.4 bn (with Japanese investors net sellers of foreign portfolios), making for an overall inflow of ¥1.86 tn (September: outflow of ¥2.43 tn).
Source: Goldman Sachs
The trick, for Abe whose investor-friendly election last month was the main catalyst for the influx of foreign money, is that just as foreign money comes easily chasing upward momentum, it can and will leave just as easily, and once said momentum is lost - and if there are any more surprises like last night's mini crash - watch as all the transitory Nikkei gains from the past month are exposed to be just that.