Japanese investors amassed nearly $14bn in foreign bonds last week, in their seventh straight week of net buying to mark the longest such run in a year, on expectations of a widening yield differential between United States Treasuries and Japanese government bonds.
Reuters reported that they bought a net 1.406 trillion yen worth of foreign bonds in the week through November 23, quadrupling from 351.5 billion the week before and marking the largest amount in five weeks, Ministry of Finance data showed on Thursday.
Japanese investors ploughed 5.22 trillion yen into foreign debt over the seven weeks, although they remained net sellers for the year at 2.415 trillion yen.
“We are seeing more aggressive purchases of foreign bonds,” said Maki Shimizu, a senior strategist at Citigroup in Tokyo.
“JGB trading volume is picking up but still it’s lower than the previous year, so that backs up this data. Domestic investors are seeking a better opportunities outside,” she said.
“But at the same time, they have to be comfortable with the yen depreciation.”
Market participants have expected Japanese investors to seek higher returns overseas after the Bank of Japan stunned financial markets in April by promising to inject $1.4tn into economy in less than two years.
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.
Yields on benchmark 10-year US Treasuries touched a two-month high of 2.839 per cent on Nov. 21 on expectations that the Federal Reserve will start unwinding its massive stimulus in coming months. The 10-year US Treasury yield ended at 2.737 per cent on Wednesday.
By contrast, the 10-year JGB yield was trading between 0.60 and 0.65 per cent in the past two weeks, not far from a six-month low of 0.580 per cent set on November 8.
Japanese investors, including banks, pension funds and life insurance companies, had 40 per cent of their debt holdings in US-denominated bonds as of the end of 2012. Analysts say a large chunk of them are in US Treasuries.
Attracted by the yen’s weakness, foreign investors continued to pile into Japanese stocks. They bought 707.5 billion yen worth of equities last week.