Foreign investors are fueling the Nikkei's rally by purchasing futures rather than cash equities, but it remains to be seen whether they will stick around this time, analysts say.
"Foreign investors are still testing the waters and haven't decided yet whether to commit by buying cash equities," said Mizuho Research Institute (MRI) senior economist Koji Takeuchi. "There was a huge inflow into Nikkei futures after the Bank of Japan's monetary expansion [at the end of October 2014], but that was swiftly followed by a sell-off in December."
Japan's benchmark index is up around 16.3 percent year to date, currently hovering around 15-year highs. The bulk of those gains came since early February with Japanese pension funds buying cash equities, while foreign investors bought futures.
"Futures are easier, lower risk and don't require real commitment," said Sunrise Brokers' Head of Japan and Asian Equities Ben Collett.
Extending the Bull Run
In February alone, foreign investors bought nearly 2.1 trillion yen ($17.3 billion) worth of futures but just 190 billion yen worth of cash equities, according to MRI's Takeuchi, citing Tokyo Stock and Osaka Securities Exchange figures.