Japanese investors net sold foreign stocks and bonds for a third straight month in December, wary of rising U.S. bond yields, while some also booked profits amid sharp fluctuations in the yen.

The investors sold overseas equities worth a net 310.7 billion yen ($1.97 billion) following net disposals of 1.22 trillion yen, a month ago, according to data from Japan's Ministry of Finance. They also ditched 1.22 trillion yen worth of bonds, the most since October, 2024.

Japanese trust accounts continued their trend, offloading a net 1.52 trillion yen worth of foreign stocks, marking their fourth consecutive month of net sales. Conversely, investment trust management companies and life insurers acquired 909.9 billion yen and 137.5 billion yen worth of shares, respectively.

In 2024, Japanese investors were net sellers of foreign equities, offloading about 3.48 trillion yen, with the bulk of sales - stocks worth 3.9 trillion yen - in the last quarter. Conversely, they purchased overseas bonds worth 4.16 trillion yen throughout the year.

Towards the year-end, investors scaled back their expectations for the Federal Reserve's interest rate cuts, influenced by the potential for increased inflation due to the tariff, migration, and tax policies of the incoming U.S. President-elect Donald Trump's administration.

Last week, minutes from the Fed's Dec. 17-18 meeting highlighted officials' increasing concerns about persistent price pressures and the potential effects of policies from the Trump administration.

This week, the U.S. dollar index reached a more than two-year high, and the benchmark 10-year yield climbed to 4.805%, its highest since November 2023, amid shifting expectations for Fed's rate cuts.

The Bank of Japan's data showed local investors sold a net U.S. equities worth 1.87 trillion yen in the year to November. They also divested 471 billion yen worth of European stocks and British stocks worth 220 billion yen during the same period. ($1 = 157.4200 yen)

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Rashmi Aich)