MNI Analysis: What Next For Japanese Investors Who Look Offshore?

Japanese investors have been net buyers of foreign bonds for 5 consecutive weeks (based on data from the Japanese Ministry of Finance). While the weekly purchase sizes have not been particularly large in outright terms, the direction of net flows is at least consistent. Japanese investors have also been net sellers of foreign equities in 4 of those 5 weeks, pointing to the potential for at least a degree of maintenance re: target asset weights within portfolios among the data.

• Still, even when we adjust for sales of foreign equities, Japanese investors have allotted a net ~Y2.4tn to foreign assets over the aforementioned 5 weeks (per the MoF data), all of which has flowed into bonds.
• A quick look at the FX-hedged yield backdrop for Japanese investors shows that the ECB/Draghi inspired decreditisation of BTPs and recent run of momentum behind the reflation trade leaves Australian 10-Year government bonds as a particularly attractive investment vehicle for Japanese investors.
• The same holds true in FX-unhedged terms, which is particularly important given that the sell-side points to widespread FX-unhedged positioning out of Japan when it comes to Australian assets.

Fig. 1: 3-Month Annualised Rolling FX-Hedged Yields From the Perspective Of A Japanese Investor

source: MNI - Market News/Bloomberg

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