Selling Of Foreign Bonds Persists, Foreigners Still Covering JGB Shorts

Japanese investors continued to shed foreign bonds at a swift pace, with Japan’s weekly international security flow data revealing the third consecutive round of net weekly sales that have topped the Y1.0tn mark. The week also represented the seventh consecutive week of net selling of foreign bonds on the part of Japanese investors, with market volatility and elevated FX-hedging costs the key stories here.

• Elsewhere, foreign investors registered the largest round of net weekly purchases of Japanese bonds observed since September of last year. We would suggest that this largely represents continued short covering in JGBs (third straight week of net purchases) after the BoJ reinforced the upper end of its permitted 10-Year JGB yield trading band in June (with foreign investors willing to test the BoJ’s resolve at that time).
• Japanese investors were net buyers of foreign equities for a fourth consecutive week, although the pace moderated from what was seen in the previous week.
• Finally, foreign investors were net buyers of Japanese equities, ending a streak of 3 consecutive weeks of net selling.