TOKYO, July 11: Japanese investors turned net buyers of foreign bonds last week, snapping a seven-week net selling streak by purchasing the largest amount since September 2012, as expectations of continued easing by the Bank of Japan prompted some to seek higher returns overseas.
The reversal came after Japanese investors dumped a record amount of foreign bonds in June. If the trend toward net buying continues, it could provide another piece of evidence that Prime Minister Shinzo Abe’s expansionary stimulus policies are having their desired effect ahead of a national election for parliament’s upper house on July 21.
Purchases of overseas assets could potentially weaken the yen, and give a tailwind to Japanese exporters. If the buyers hedged their bond purchases, however, that would blunt any impact on foreign exchange markets.
Japanese investors bought a net 973.1 billion yen ($9.72 billion) of foreign bonds in the latest week, capital flows data from Japan’s Ministry of Finance showed on Thursday, after selling a net 965.0 billion yen the week before.
Those purchases came after the finance ministry said Japanese investors sold a record 2.958 trillion yen of foreign bonds last month, joining a global exodus from fixed-income assets on speculation that the US Federal Reserve will taper its asset-buying stimulus as the US economy improves. Such expectations helped push the yield on the US benchmark 10-year Treasury note to a 23-month high of 2.755 percent on Monday.
However, Fed Chairman Ben Bernanke caught markets off-guard on Wednesday, saying that highly accommodative monetary policy would be needed for the foreseeable future.
A Reuters poll earlier this month found a majority of economists at large Wall Street firms believe the central bank will start to slow its monthly asset purchases of $85 billion per month by September this year.
The yield on the benchmark 10-year Japanese government bond has mostly stuck in a narrow range between 0.80 and 0.90 percent since late May, with Japan’s central bank committed to meeting a target of achieving 2 percent inflation in two years.
The BOJ kept monetary policy steady on Thursday and offered a more optimistic view of the economy.
The BOJ said on April 4 that it will increase base money, or cash and deposits with the central bank, at an annual pace of 60 trillion to 70 trillion yen.
(agencies)
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