Growing concerns over an AI bubble led to capital outflows from the Japanese stock market last week

According to data from the Japan Exchange Group, overseas investors were net sellers of approximately 395 billion yen ($2.5 billion) in Japanese stocks during the week ending May 29, ending an eight-week streak of net buying. This sell-off occurred as the tech-heavy Nikkei 225 index breached the 65,000-point mark for the first time, primarily driven by AI-related stocks such as SoftBank, Kioxia, and Murata Manufacturing. The rapid rise of the Nikkei index has sparked concerns among some market participants about overheating, prompting them to take profits.

"A growing number of people believe AI is forming a bubble, and we estimate that about 70% of the gains in the Japanese stock market in 2026 will come from AI-related stocks," said Pelham Smithers, Managing Director of UK-based equity research firm Pelham Smithers Associates. He noted that as caution intensifies, some global investors "want to exit Japan and shift funds to markets with less AI exposure, such as Europe." (Jin Shi)