| TOKYO, June 1
TOKYO, June 1 Japanese investors are returning
to foreign bonds after five months of near relentless selling,
data from Japan's Ministry of Finance showed on Thursday, a
delayed start in allocating new money for the financial year
that began in April.
Weekly capital flows data showed Japanese investors bought
732 billion yen ($6.6 billion) of foreign bonds last week,
bringing total buying in the past four weeks to 3.696 trillion
yen ($33.3 billion).
That suggests net buying in May is likely to hit the highest
since last July, when they bought 5.449 trillion yen, and
signals a major change from heavy selling from December to
"In the new financial year, investment in foreign bonds is
recovering. There will be more buying if the 10-year U.S. bond
yields edge near 2.5 percent," said Yoshinori Shigemi, global
market strategist at JPMorgan Asset Management.
Last year, Japanese investors piled into foreign bonds, with
U.S. Treasuries and French government bonds the most popular
because of their liquidity and relatively high yield compared
with Japanese and German government bonds.
But those investments turned sour. U.S. bond markets tumbled
after Donald Trump's win in the U.S. presidential election
raised expectations of reflationary stimulus steps, benefitting
equities, while French bonds faltered early this year on worries
over the outcome of the French presidential election.
Selling continued even after the new business year began in
April, when investors sold a record 4.256 trillion yen ($37.24
billion) of foreign bonds.
Investors appear to be done with selling for now and are
likely to rebuild their foreign bond portfolios, market players
But the pace of buying seems slower than in recent years,
said Hiroshi Yokotani, senior vice president of fixed income at
"In the past few years, we saw a big amount of buying at the
start of the Japanese financial year, but that is absent this
year. They have little reason to hurry in buying," he said.
Worries about further falls in foreign bond yields and
possible rises in currency hedge costs prompted Japanese
investors to front-load their purchases in recent years.
But both global bond yields and hedging costs are steadier
now, giving Japanese investors less reason to buy in haste, he
Their foray into corporate bonds may slow after massive
buying last year, some market players said.
U.S. Treasury Department data published in late April showed
Japanese investors' holdings of U.S. corporate bonds jumped to a
record $187 billion in 2016, after having held steady around
$165 billion in the preceding three years.
"It's not that everyone is bullish on credit products. Some
investors who had been buying corporate bonds last year are
taking a wait-and-see stance," said Tetsuaki Kobata, managing
director of Citigroup Global Markets.
"But the number of investors who buy credit products is
clearly increasing at the same time," he said.
($1 = 110.93 yen)
(Editing by Jacqueline Wong)