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.”