TOKYO, Oct 31: Japanese investors ploughed $11 billion into foreign bonds last week, adding to another week of large outflows as they sought higher returns with yields on Japanese government bonds holding at a five-month low.
They bought 1.037 trillion yen ($10.6 billion) worth of foreign bonds in the week through Oct. 26, data from the Ministry of Finance showed, building on a 1.413 trillion yen of net buying the week before – the largest in two months.
They had bought another 386.9 billion yen of foreign bonds in the week through Oct. 12.
The net purchases over the past three weeks more than cancelled out 2.225 trillion yen of net selling in foreign bonds for the week between Sept. 29 and Oct. 5, the biggest ever since the ministry began collecting the data in 2005.
Purchases of overseas assets could potentially weaken the yen, providing a tailwind to Japanese exporters, although any impact on foreign exchange markets would be diminished if investors hedge their bond purchases
Nomura Securities expected Japanese life insurance companies were likely to shift their investment into foreign bonds as Japanese government bond yields stayed low.
‘Lifers’ only realistic alternative assets to JGBs currently are foreign bonds. Lifers’ foreign bond investment activity was unusually low in the first half of FY2013, but we expect this to accelerate,’ analysts at Nomura wrote in a note ahead of the latest weekly capital flow data.
Yields on benchmark 10-year JGBs were quoted at 0.585 percent on Thursday morning, their lowest since May 9. The Bank of Japan’s massive easing campaign launched in April has kept JGB yields low over recent months.
By contrast, the 10-year U.S. Treasury yield closed at 2.527 percent on Wednesday.
Foreign investors sold 8 billion yen worth of Japanese equities last week, however, after piling 442.7 billion yen into Japanese stocks in the previous two weeks. ($1 = 98.1450 Japanese yen)
(agencies)
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