TOKYO -- The Nikkei Stock Average's variability in July hit its lowest since November 1980 as lackluster investment from foreigners was canceled out by the Bank of Japan's purchases of exchange-traded funds.
The Nikkei average hovered around 20,000 during the month and fluctuated just 1.3%, calculated by subtracting July's high of 20,195 from the low of 19,925 and dividing by the index's value of 20,033 at the end of June.
Foreign investment dries up
Economic uncertainty in the U.S. and political concerns in Japan have led "many foreigners to refrain from purchasing Japanese equities," said Ryoma Sugihara of Societe Generale Securities. The Nikkei average is sensitive to foreign investment due to the presence of Toyota Motor, Sony and other companies that rely on international earnings. Japan Inc.'s April-June earnings started off well, but concerns linger about a strengthening yen depending on developments in American and European monetary policies.
Meanwhile, the average daily value of trading on the Tokyo Stock Exchange in July slid about 10% from the previous month to just over 2.2 trillion yen ($19.9 billion). Foreigners made up just 67% of commissioned trading up to July 21 on the first, second and emerging market sections of the Tokyo and Nagoya stock exchanges, the lowest level in seven months.
The sluggishness of Japanese stocks can be felt when compared with other major markets. Variability in July for America's Dow Jones Industrial Average stood at 2.4% as of Friday, while Germany's DAX and South Korea's KOSPI measured 3.9% and 3%, respectively.
BOJ shopping spree
The BOJ continues to buy exchange-traded funds as part of its monetary easing policy, combating lower share prices and preventing any volatile decline in the market.
The central bank bought 448.2 billion yen worth of ETFs in July. Despite a slower pace than the BOJ's monthly average of 490.7 billion yen from January to June, the impact on the market is large due to thin trading by other investors. ETF purchases even reached about 70 billion yen some days.
Japanese equities likely will remain directionless through August.
"Excluding a reshuffle of [Prime Minister Shinzo Abe's] cabinet and Liberal Democratic Party leadership, there are few domestic factors that likely will impact the market," said Kyoya Okazawa from BNP Paribas. "Many investors are taking the long view this summer."