Japan foreign bond exit continued into September

TOKYO: Japanese investors were net sellers of foreign bonds for a second successive month in September, as rising borrowing costs in the United States and Europe and increasingly attractive yields at home have prompted a retreat from overseas debt markets.

Japanese investors sold a net 969 billion yen (US$6.13bil) of foreign bonds last month, less than the 1.16 trillion yen in net sales recorded the previous month, data from the Finance Ministry showed Tuesday.

They sold a net 1.43 trillion yen of foreign long-term bonds – the most in six months – while buying roughly 457 billion yen of short-term bills.

Rising Japanese rates are beginning to lure some of the country’s vast overseas investments home, marking a notable shift in global capital flows.

Japanese investors have made net foreign bond sales of about 5.08 trillion yen so far this year, the most since 2022.

The outflows could support the yen and pressure bond markets where Japan has been a major buyer for decades.

A surge in energy costs has heightened inflation concerns and prompted the US Federal Reserve and the European Central Bank to raise interest rates in September, putting further pressure on global bond markets.

Japan’s benchmark 10-year government bond yield reached a 30-year high of 3.122% earlier this week, strengthening the appeal of domestic debt.

Japanese banks led the selling of foreign long-term bonds in September, offloading a net 2.49 trillion yen, the most in seven months.

Life insurers and investment trust management companies also recorded net sales of 288.6 billion yen and 200.1 billion yen, respectively.

Trust accounts, however, purchased a net 1.2 trillion yen of foreign long-term bonds, highlighting divergent investment strategies among Japanese institutions.

A separate Bank of Japan report showed Japanese investors sold a net 4.74 trillion yen of US bonds in the first eight months of this year, while purchasing a net 355.85 billion yen of European bonds.

Within Europe, Japanese investors bought a net 329.82 billion yen of Italian bonds, while selling 208.59 billion yen of French debt and 94.25 billion yen of German bonds. — Reuters