JPY: Seasonality Slows Foreign Bond Flows – Nomura
Yujiro Goto, Research Analyst at Nomura, suggests that Japanese
investors sold foreign bonds aggressively last week, according to the
MOF.
Key Quotes
“They sold JPY1555bn
($14.1bn) of foreign bonds, for the first time in seven weeks. Japanese
investors bought JPY8783bn of foreign bonds during the previous six
weeks, and total foreign bond purchases since the negative rate
announcement have remained significant at JPY5913bn.
Although
Japanese investors were large net sellers of foreign bonds last week, we
believe the FX impact was much smaller than the amount suggests.
The
March bond investor survey by Nikkei Quick (29-31 March) shows that,
unsurprisingly, more Japanese bond investors plan to reduce their
investment in JGBs this fiscal year.
At the same time, the
survey shows stronger demand for FX-hedged foreign sovereign bonds than
unhedged bonds, and Japanese foreign bond investment in the near future
will remain mostly on a hedged basis. Hedging costs are still likely to
increase this year, as we expect the Fed to resume its hiking process,
and unhedged-based investment will likely be gradually more popular,
sending JPY weaker in the medium term.”
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