By Chris Dieterich 
 

NEW YORK--Investors pumped a record amount of cash into exchange-traded funds focused on Japanese stocks last month - just as the Japanese market was on the brink of a series of sharp declines.

Globally listed Japan-stock exchange-traded funds saw inflows of $10.2 billion in May, the most on record, according to BlackRock Inc. (BLK).

Japanese stocks rode a nearly straight line higher as Prime Minister Shinzo Abe announced policies to inflate prices and revamp the economy late last year.

But the market has been rattled in recent weeks by increased volatility and a series of severe drops. The Nikkei 225 index soared more than 80% over the seven months ended late last month, before falling 15% over the past eight sessions. On Tuesday, the Nikkei rallied 2.1% for its biggest one-day gain in nearly three weeks.

The string of declines led to some moderation in inflows toward the end of May, BlackRock's data show, but the overall trend for strong inflows was clear. The pace of flows into Japan stock ETFs this year is already more than double the levels seen in 2012 and 2011.

So far in 2013, flows into Japan funds have represented nearly one-quarter of inflows into all global stock ETFs.

A trio of Japan-centered ETFs are the biggest recipients of inflows so far this year. The WisdomTree Japan Hedged Equity Fund (DXJ) took in $7.8 billion through the end of May. The fund provides exposure to export-oriented Japanese stocks and also short positions in the yen. The iShares MSCI Japan ETF (EWJ) absorbed $5.4 billion. The Daiwa ETF0-Topix, which trades in Tokyo, has seen inflows of $4.4 billion.

Write to Chris Dieterich at christopher.dieterich@dowjones.com;

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