Japanese investors increased their purchases of overseas bonds in the week to Aug. 17, as diminishing worries about rapid rate hikes by the Bank of Japan soothed concerns over a strengthening yen and its negative impact on carry trades.
Some analysts said investors were also taking advantage of a stronger yen to purchase foreign bonds, following a sharp rally in the currency in the past month.
Japanese investors acquired 1.85 trillion yen ($12.72 billion) in long-term overseas bonds during the week, marking their largest weekly net purchase since May 18, data from the Ministry of Finance showed. However, they sold off short-term securities totalling a net 143.9 billion yen.
The Bank of Japan’s interest rate hike earlier this month strengthened the yen, leading Japanese investors to unwind carry trades in favour of overseas bonds, which offer higher returns versus low interest rates in Japan.
“Financial market instability in early August invited criticism that the BOJ was too hasty to hike. Although a large chunk of yen carry trades appears to have been unwound for now, the BOJ may hesitate to hike rates if market instability relapses,” said Oxford Economics in a note on Thursday.
Japanese investors also poured a net 353.2 billion yen into overseas equities, marking the fourth weekly net purchase in five weeks.
Meanwhile, foreigners invested a robust 1.53 trillion yen into long-term Japanese bonds, the biggest amount in a week since May 11. They, however, sold short-term instruments of a net 1.36 trillion yen, posting a ninth weekly outflow in 10 weeks.
Cross-border investors, meanwhile, exited Japanese shares to the tune of 47.9 billion in the week, after about 521.9 billion worth of net purchases in the prior week.
($1 = 145.4000 yen)
