Overseas investors are pouring into Japanese equities at the fastest rate in a decade, with net purchases of stocks and index futures hitting a more than ten-year high in the week following Takaichi Sanae's election victory. Data released by Japan Exchange Group on Thursday showed that foreign investors bought a net 1.78 trillion yen (approximately $115 billion) worth of Japanese stocks and index futures in the week ending February 13, marking the largest weekly inflow since November 2014. This surge in capital followed Takaichi Sanae's win, with expectations of political stability and increased government spending driving the buying spree.

So far this year, Japanese equities have significantly outperformed U.S. stocks. The Topix index has risen 10% year-to-date, while the S&P 500 has recorded only modest gains. Global investors are seeking more reliable sources of returns outside the U.S. market, benefiting the Japanese market.

Multiple factors are driving this wave of foreign investment, including Takaichi Sanae's fiscal expansion plans, a weak yen benefiting exporters, and continued pressure from activist investors.

Fiscal expansion expectations are boosting market sentiment. Russell Shor, a senior market strategist at trading platform Tradu in Johannesburg, noted that if investors are looking for opportunities outside the U.S., Japan is one of the top choices. He emphasized that post-election political stability is significant, not just for stability itself but also due to Takaichi Sanae's strong victory margin. This makes Japan highly attractive, as her win has instilled confidence in policy continuity.

Optimism surrounding Takaichi Sanae's fiscal expansion plans is a key driver of capital inflows. Investors anticipate that her policies will boost various sectors, from artificial intelligence and energy to shipbuilding, creating growth opportunities for related industries. At the same time, the persistently weak yen provides a tailwind for export-oriented companies, further enhancing the appeal of Japanese equities. Continued pressure from activist investors is also pushing for corporate governance reforms and improved shareholder returns.

The fading appeal of U.S. stocks is prompting a shift in capital. Recent months have seen market volatility related to artificial intelligence and geopolitical concerns dampening the attractiveness of U.S. equities. Against this backdrop, Shor pointed out that Japan's equity risk premium is particularly appealing to international fund managers. Global investors are actively seeking portfolio diversification to reduce their reliance on the U.S. market. With its relative valuation advantages, anticipated policy support, and stable political environment, Japan has become a key destination for capital reallocation.