Foreign Selling Pressure Collapse
We are seeing a major shift in foreign sentiment towards Japanese equities. The dramatic halt in outflows, from a massive ¥2.5 trillion sell-off to a nearly flat ¥4 billion, suggests the recent wave of profit-taking has exhausted itself. This abrupt stabilization is a critical signal that the heavy downward pressure on the market may be over for now. This change comes after the Nikkei 225 pulled back from its recent highs above 42,000 in early March, a drop largely driven by those foreign outflows. The initial selling was likely a reaction to both the rapid gains seen since late 2025 and jitters over the Bank of Japan’s slow but steady policy normalization. The market now seems to have digested this news, finding a potential floor. For derivatives focused on the Nikkei 225 and Topix, this is a time to reconsider outright bearish positions. The sharp drop in selling pressure implies that implied volatility, which likely spiked during the exodus, is now set to decline. We should look at selling puts or implementing bull put spreads to capitalize on both this stability and the potential for a “volatility crush”. The currency market is also key here, as those huge capital outflows put significant downward pressure on the yen, helping push USD/JPY above 154. With foreign selling neutralized, a primary driver of yen weakness has been removed. We should now anticipate the yen to find support, potentially creating opportunities in options that profit from USD/JPY failing to break higher or even drifting lower. Looking back at the major rallies of 2023-2025, they were almost always preceded by strong, consistent foreign inflows. While we are not seeing inflows yet, this cessation of selling is the first step required for a market bottom. Therefore, we should be preparing to scale into long Nikkei futures positions or purchase call options dated for the summer if we see this trend hold for another week.Positioning For A Potential Bottom
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