Japan: Investors bought foreign bonds aggressively last week - Nomura

Yujiro Goto, Research Analyst at Nomura, points out that Japanese investors bought foreign bonds aggressively last week ($14.3bn) even though Japanese investment in foreign bonds has slowed several times so far this fiscal year, when financial market volatility rose.

Key Quotes

“Nonetheless, the total amount of foreign bonds purchased so far this fiscal year has reached JPY8.6trn ($78bn), a larger amount than the previous 5yr average. Recently, it has been clear Japanese investors prefer European bonds to US bonds.”

“Higher FX hedging costs for USD assets has clearly encouraged Japanese investors to purchase more EGBs than USTs. However, the latest BoP data for September showed Japanese investors bought JPY2.5trn ($22.5bn) of US LT bonds, of which JPY2.3trn was invested in US LT sovereign bonds.”

“Their purchases of US LT sovereign bonds in September were the largest net monthly purchases since July 2016, even though FX hedging costs remained elevated in September.”