June 3 (Reuters) - Japanese equity funds logged their largest weekly outflows in nearly 18 years in the week to May 28, as investors either booked profits following a rally fueled by the then-easing U.S.-China trade tensions or turned cautious on earnings potential.
According to LSEG Lipper data, Japanese equity funds recorded net outflows of $7.49 billion, marking the largest weekly withdrawal since July 4, 2007.
Daisuke Motori, director of manager research at Morningstar Japan, said the outflows from Japanese equity funds in May reflected a familiar pattern, with investors buying during April's dip and selling into the May rebound.
Some of the flows could also be due to rebalancing by Japan's massive life insurance and pension firms as they sell rising stocks and buy bonds to maintain asset ratios, analysts said.
Another headwind has been the yen, which has appreciated 10% against the U.S. dollar so far this year, potentially eroding export profitability. LSEG data shows analysts have downgraded forward 12-month earnings estimates for Japanese firms by 1.8% over the past 30 days.
"Corporate governance is improving, but we think this is unlikely to be a near-term catalyst," said Herald van der Linde, head of equity strategy at Asia Pacific.
He noted that while reforms were underway, their impact on profits would take time - return on equity (ROE) in Japan still lagged other major markets.
Domestic investors drove almost the entirety of outflows, Lipper data showed, with $7.55 billion pulled from local funds. In contrast, foreign funds recorded $59 million in net inflows.
The Daiwa iFreeETF TOPIX, Nikko Listed Index Fund TOPIX, and Nomura NF TOPIX ETF recorded the largest outflows during the week, with redemptions of $2 billion, $1.92 billion, and $1.61 billion, respectively.
Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru, and Rae Wee in Singapore; Editing by Vidya Ranganathan and Janane Venkatraman
Source: Reuters