Japanese Bonds See Record Foreign Divestment Amid Economic Concerns

Foreign investors massively divested from Japanese bonds, reaching a four-month peak. Concerns over rising crude oil prices and a weakening yen, which may prompt the Bank of Japan to tighten policy, drive this trend. Meanwhile, Japanese investors showed mixed activity in foreign stocks and bonds.

Foreign outflows from Japanese bonds surged to a four-month high by July 25, igniting concerns that fluctuating crude oil prices and a declining yen could compel the Bank of Japan to tighten its policies. Data from Japan's Ministry of Finance indicated foreign investors divested a net 1.51 trillion yen ($9.24 billion) in Japanese long-term bonds and 2.89 trillion yen in short-term bills, marking the largest weekly net sales since March.

The situation intensified with a 9.85% leap in Brent crude prices and the yen plummeting to nearly a four-decade low against the U.S. dollar. This heightened speculation that the Bank of Japan might increase rates at its meeting in October to control import-cost inflation. Reports from Bloomberg News revealed that central bankers in Japan are considering faster-than-expected interest rate hikes. Amidst these shifts, foreign investors purchased about 912.1 billion yen worth of local stocks last week, reversing the modest net sales observed earlier.

On the domestic front, Japanese investors remained net buyers of foreign stocks, investing 320.2 billion yen—their largest weekly investment in three weeks. Conversely, they sold off a net 811.4 billion yen in foreign long-term bonds and 41.1 billion yen in short-term securities, marking a second week of net sales. The Nikkei 225 was hit, dropping to a two-month low amid a sell-off in the chip sector.