Japanese investors turn net buyers of overseas bonds in January

(Reuters) – Japanese investors turned net buyers of overseas bonds in January for the first time in five months, as U.S. bond yields retreated on signs that slowing inflation would prompt major central banks to reduce their pace of rate hikes.

According to data from Japan’s Ministry of Finance, Japanese investors purchased a net 1.56 trillion yen ($11.79 billion)worth of foreign bonds in January, marking their biggest buying spree since September 2021.

The U.S. 10-year Treasury benchmark yield touched a 4-month low of 3.321% last month.

Japanese investments in overseas assets https://fingfx.thomsonreuters.com/gfx/mkt/akpeqmrnbpr/Japanese%20investments%20in%20overseas%20assets.jpg

“Buying of foreign bonds was concentrated in the first part of the month, when Fed rate hike expectations fell in response to weaker-than-expected economic indicators, and reverted to selling in the latter part of the month,” Naka Matsuzawa, an analyst at Nomura, said in a note.

Life insurance companies sold about 1.1 billion yen of long-term debt, while trust banks and toshins bought 1.3 billion yen and 550 million yen, respectively.

Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, said Japanese buyers were likely buying foreign bonds on an unhedged basis.

“Buying FX-hedged foreign bonds makes little sense given Japanese government bonds are a more attractive option,” he said.

Japanese investments in U.S. and European assets https://fingfx.thomsonreuters.com/gfx/mkt/byprlkdxzpe/Japanese%20investments%20in%20US%20and%20European%20assets.jpg

Japan’s 10-year government yields were trading at 0.5% on Monday – the upper limit of the central bank’s policy band, which was widened to 0.5% from 0.25% in December.

Some market participants bet the Bank of Japan will raise the cap further or even abandon the policy, known as yield-curve control, as the economy is grapples with soaring inflation, which is at a 41-year high.

The data showed that in the first week of February, Japanese investors bought 1.1 trillion yen worth of overseas bonds.

Meanwhile, domestic investors also poured 1.67 trillion yen into foreign equities in January in a second straight month of net buying.

($1 = 132.3500 yen)

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Mark Potter)