Japanese investors boost foreign bond purchases as rate-hike worries ease

Japanese investors increased their purchases of overseas bonds in the week ended Aug. 17, as diminishing worries about rapid rate hikes by the Bank of Japan soothed concerns over a strengthening yen and its negative impact on carry trades.
Investors were also taking advantage of a stronger yen to purchase foreign bonds, following a sharp rally in the currency in the past month, some analysts said.
Japanese investors acquired 1.85 trillion yen ($12.72 billion) in long-term overseas bonds during the week, marking their largest weekly net purchase since May 18, data from the Ministry of Finance showed. However, they sold off short-term securities totalling a net 143.9 billion yen.
The Bank of Japan’s interest rate hike earlier this month strengthened the yen, leading Japanese investors to unwind carry trades in favour of overseas bonds, which offer higher returns versus low interest rates in Japan.
“Financial market instability in early August invited criticism that the BOJ was too hasty to hike. Although a large chunk of yen carry trades appears to have been unwound for now, the BOJ may hesitate to hike rates if market instability relapses,” Oxford Economics said in a note on Thursday.
Japanese investors also poured a net 353.2 billion yen into overseas equities, marking the fourth weekly net purchase in five weeks.
FOREIGN ACTIVITY IN JAPANESE BONDS AND EQUITIES
Meanwhile, data from the Ministry of Finance revealed that foreigners invested 1.53 trillion yen in long-term Japanese bonds last week, the highest weekly amount since May 11. However, they sold short-term instruments totaling a net 1.36 trillion yen, marking the ninth weekly outflow in 10 weeks.
In equities, foreign investors withdrew 47.9 billion yen from Japanese shares, following net purchases worth 521.9 billion yen the previous week.
Foreigners purchased a net 187.21 billion yen worth of cash equities in the week ended Aug. 16, but sold about 115.13 billion yen in derivatives, marking their fifth consecutive week as net sellers in that segment, data from stock exchanges showed.
“With the JPY going back to a more reasonable level and short JPY positions being reduced, the market will focus more on fundamentals (of Japanese equities), said Kelly Chung, chief investment officer, multi assets at Value Partners.
($1 = 145.4000 yen)