Foreign investors were significant buyers of Japanese in the early days of Abenomics. In 2012 and 2013, foreign investors bought JPY3.62 trillion of Japanese shares. They were still small buyers in 2014 (JPY178 bln), but last year, they were sellers for the first full year since 2011.  

This year, the selling has dramatically accelerated. In the first nine months of the year, foreign investors have sold a whopping JPY8.25 trillion of Japanese shares. To put this in perspective, in the first nine months of 2015, foreign investors divested JPY895 bln of Japanese stocks.  

September 2016 was the fifth consecutive month that foreign investors sold Japanese shares. They sold JPY1.34 bln of Japanese equities last month, which is nearly the same that was sold in the previous four months (JPY1.51 bln).  

The weekly MOF stock and bond flows do not jive with the monthly time series that is part of the monthly balance of payments report, but it gives a close approximation. For example, based on the sum of the weekly reports, foreign sales of Japanese shares were a JPY1.23 trillion, or about JPY110 bln less than the BOP data.   

The weekly data suggests the foreign sell-off may be ending. Foreign investors have been net buyers of Japanese shares for four consecutive weeks through October 21. It is the longest buying spree in six months. Foreigners bought JPY840 bln during the buying streak.  

Two things have happened that might be encouraging the buying. First, the yen has weakened. In the first past of Q3, the dollar was flirting with the JPY100 area. It was most recently testing in late-September, and it held. The yen has declined by around 5%. It is trading near three-month lows.

Second, as the Great Graphic, created on Bloomberg illustrates, the Nikkei has risen above the downtrend drawn off last year's highs. What is not depicted in the chart is the fact that the decline nearly reached the 50% retracement objective from the 2012 lows. That retracement objective was pegged near 14544. This year's low has been 14866.  

The Nikkei advanced in four of last week's five sessions, repeating the previous week's performance. It was fractionally lower today, though the market was mixed. Energy and health care were important drags, while financials led the gainers, followed by information technology and telecom. The Nikkei is now bumping against the 17440-17600 band of resistance, which houses the April high and the 50% retracement objective of the slide since the end of last year. We note that the 50-day moving average crossed above the 200-day moving average (= Golden Cross) in the middle of October. The daily technical indicators suggest more near-term gains are likely but may not reach the next objective near 17900 without a correction/consolidation.