Japanese investors sell foreign bonds as JPY weakness accelerates – Nomura

FXStreet (Barcelona) – Research Analysts at Nomura offer the MOF weekly capital flow data for the week ending 6th June, noting that Japanese investors sold foreign bonds for the 2nd week in a row while favouring foreign equities for the 29th week now.

Key Quotes

“Japanese investors sold foreign bonds last week for the second week in a row, according to the MOF. They sold JPY385bn ($3.1bn) of foreign bonds last week, a slightly bigger amount than the previous week (JPY348bn).”

“As yields have resumed rising globally, Japanese investors are likely to have stayed on the sidelines for now. In addition, JPY weakness accelerated last week, which may have discouraged Japanese investors from adding unhedged foreign bond exposure, while inviting profit-taking. They bought foreign bonds aggressively in May (JPY2436bn or $19.8bn), but over the last two weeks the amount of net selling has still been relatively small.”

“Japanese yields have also risen, but 10yr JGB yields are still around 0.5%, which is still within the major lifers’ forecast range. The magnitude of the rise in JGB yields has also been smaller than for foreign government bond yields, and we expect Japanese investors to continue shifting into foreign bonds from domestic bonds, but momentum will depend on volatility in the bond market and the level of JPY.”

“Japanese investors continued to purchase foreign equities for the 29th week in a row, but the amount of net purchases slowed to JPY54bn ($0.4bn) from JPY169bn the previous week. May international investment flow data released by the MOF suggest both retail investors and pension funds continued to purchase foreign equities, albeit at a slower pace. We expect retail investors and pension funds to remain net buyers of foreign equities for the time being.”

“Foreign investors continued to purchase Japanese equities (JPY255bn or $2.1bn) while purchasing long-term bonds (JPY122bn or $1.0bn) for the first time in two weeks. Foreign investors sold short-term bonds to the tune of JPY1764bn ($14.3bn), after purchasing aggressively during the previous week (JPY2357bn). Even though foreign investors purchased Japanese long-term bonds last week, momentum has been slowing, likely owing to higher yields globally.”

Research Analysts at Nomura offer the MOF weekly capital flow data for the week ending 6th June, noting that Japanese investors sold foreign bonds for the 2nd week in a row while favouring foreign equities for the 29th week now.

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