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Japanese investors snatch up foreign bonds, avoid low domestic yields
06/26/2014 Email this story  |  Printable Version

By Hideyuki Sano

TOKYO, June 26 (Reuters) - Japanese investors sped up their buying of foreign bonds in recent weeks, data from Ministry of Finance showed on Thursday, as persistently low domestic yields prompted them to seek higher returns abroad.

Japanese investors bought 1.4865 trillion yen ($14.6 billion) of foreign bonds last week, their largest net buying since the first week of August.

They accelerated their acquisitions in June, with their net buying during the first three weeks of the month amounting to 3.4542 trillion yen ($33.9 billion), the largest purchase on a three-week rolling basis since August 2010.

Their rush to foreign bonds partly reflected a growing view that monetary policy in both the United States and Europe will remain loose.

But it also shows that, a year after the Bank of Japan started monetary easing at an unprecedented scale, Japanese investors reacted to the policy by moving funds abroad.

"The impact of low Japanese yields is big. Investors who had not bought foreign bonds in the past are starting to buy foreign bonds this financial year," said Tomoaki Shishido, fixed income analyst at Nomura Securities.

The BOJ's radical policy, started in April last year, initially caused huge volatility in the bond market. But after the dust settled, the 10-year JGB yield appeared to become stuck - almost pegged - around 0.6 percent.

The BOJ currently buys over 7 trillion yen of JGBs per month, or about 70 percent of the amount supplied by the Ministry of Finance.

Right after the BOJ started that policy, however, Japanese investors sold foreign bonds, despite widespread speculation that they would buy more foreign bonds instead of Japanese bonds.

In April-June last year, they sold a net 4.3983 trillion yen of foreign bonds, locking in profits rather than boosting their holdings.

That flow is now completely reversed. Since the start of the current financial year in April, they have bought 5.2 trillion yen worth, which is seen as one reason bond yields in the U.S. and Europe slumped this quarter.

The 10-year U.S. debt yield hit a one-year low of 2.40 percent in May, puzzling many investors who had expected yields to rise on the prospect of a solid recovery in the U.S. economy.

The 10-year German Bunds yield fell to one-year low of 1.268 percent just on Wednesday, helped by a series of easing steps taken by the European Central Bank (ECB).

Japanese investors' hefty buying of U.S. Treasuries and German Bunds, however, has not led to a weakening in the yen so far, suggesting a large part of investment is made with currency hedging in place.

The Japanese currency has hardly moved this quarter, with the dollar trading in a narrow band between 100.81 and 104.13 yen. It stood at 101.77 yen on Thursday. ($1 = 102.0500 Japanese Yen) (Reporting by Hideyuki Sano; Editing by Eric Meijer)

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