Japan’s fiscal deficit plunges and foreign capital’s "withdrawal operation" ~ Scenario changes dramatically! Interpreting the shift of funds from the Nikkei Average to government bonds and gold ~

A Sudden Fiscal Turnaround: From Surplus Forecast to 8 Trillion Yen Deficit

From the Cabinet Office, the outlook for next year's fiscal balanceis an 8000 billion yen deficithas been announced. Three months ago, a “surplus” forecast was issued, so many market participants built trading plans on that scenario. However, this premise has been completely overturned.

With Prime Minister Takaichi coming to power and signaling a firm stance on expansionary fiscal policy, this situation could be anticipated to some extent, but with today’s formal disclosure, markets will be forced to undertake a **significant revision of the annual plan**.

Foreign investors' "withdrawal operations" begin

In response to this announcement, foreign funds and other investors must reduce the budgets allocated to the Nikkei stock average. For positions they had already started building, they are likely to switch to a **"withdrawal operation"**.

The shift by foreign capital, which controls vast assets, is about to begin in earnest.

What should be noted here is theirobsession with thorough profit extractionWhen foreign investors withdraw, they do not simply run away. They will demonstrate a move like, “the funds already投入 should be fully realized as profit before they exit.” They always operate with the mindset that **“Plan-B (withdrawal battle) will be more profitable than the original plan”**.

This year, a “buy-the-dip” strategy for the Nikkei 225 was recommended, but while short-term trading aiming for volatility is one thing, fundamental changes are required for medium- to long-term scenarios.

Where will foreign funds head next?

The enormous capital withdrawn from the Nikkei average—where will it go? The main destinations are threefold.

1. Shift into Japanese government bonds (especially ultra-long term)

Currently, Japan’s long-term government bonds, particularlyultra-long bonds such as 40-year maturitiesare on sale. For foreigners who want to reduce Japanese stock risk while holding inexpensive Japanese assets, switching to government bonds is a rational option.

2. Repatriation back to home country (capital repatriation)

Moves to extract funds and return them home to their parent country will intensify. Those who move vast sums will be careful to avoid market impact, using **iceberg orders** to slowly sell yen, which is expected to create a gradual upward pressure on the USD/JPY.

3. Inflow into precious metals (gold and silver)

Not only returning funds to home country, but also keeping assets in yen and converting them into globally undervalued assets is another trend.Gold and silverIn yen-denominated precious metal prices, influenced by exchange rates, foreign investors find attractive escape assets.