Familiar Patterns Observed In Weekly International security Flow Data

The latest round of Japanese weekly international security flow data saw the eighth consecutive week of net selling of foreign bonds on the part of Japanese investors, while foreign investors were net buyers of Japanese bonds for a fourth consecutive week.

• The recent run of Japanese selling of foreign bonds is likely owing to increased market volatility and elevated hedging costs.
• Meanwhile, the run of net purchases of Japanese bonds by foreign investors points to continued covering of JGB shorts on the part of foreign investors after the BoJ doubled down on its defence of its current YCC settings in June, while stressing that it has no plan to alter its monetary policy settings at present. Note that the cumulative net purchases observed in the last 4 weeks are still ~Y1.1tn lower than the cumulative net sales observed in the 2 weeks prior to that run (when the international investor community was testing the BoJ’s will), pointing to continued space for foreign investors to cover recently established shorts.
• Note that both of the bond flow metrics are off of their respective recent extremes in weekly net terms.
• When it comes to equity flows, Japanese investors were net buyers of foreign equities for a fifth consecutive week, albeit at a reduced pace, while foreign investors were net buyers of Japanese equities for a second consecutive week, once again at a reduced pace.