Don't Miss the Signals of Sharp Rallies and Sell-Offs: Reading Japan's Stock-Market Turning Points Through 'Arbitrage Buying Balances' (Kubota Masayuki (窪田真之))

Foreign investors drive the movement of Japanese equities. For more than 30 years, the Nikkei 225 has tended to rise in months when foreign investors are net buyers and fall in months when they are net sellers. The commentary, accompanied by charts, explains the view that the activity of overseas speculators trading Nikkei 225 futures in particular has a significant impact on short-term price movements.

Changes in outstanding arbitrage buying positions, which reflect the activity of speculators, are closely correlated with rises and falls in the Nikkei 225. When long positions increase, outstanding arbitrage buying positions rise, and when they decrease, outstanding arbitrage buying positions decline. Since 2024, there have been periods when outstanding arbitrage buying positions exceeded ¥3 trillion, while as of the end of August they stood at approximately ¥2.3 trillion, with no significant change reported.

The long-term view remains unchanged: Japanese equities are undervalued and have significant long-term upside potential. The article states that continuing to invest in undervalued Japanese equities over time, while using time diversification amid repeated sharp declines and rallies, can contribute to asset building.

For reference, past examples from before Chart 3 are also presented as data for reading Nikkei 225 futures trading activity in greater detail. Movements in 2018 and 2019, the market during the COVID-19 shock and examples of short squeezes are discussed, helping readers better understand how to interpret the activity of speculators and outstanding arbitrage positions.