Japanese investors sell overseas bonds for 2nd week on inflation fears

Japanese investors sold foreign bonds for a second ​straight week through August 29, adding ​to signs that demand for overseas ‌debt is ​weakening as persistently high inflation and expectations of higher interest rates roil global bond markets. They sold a net 824 billion yen ($5.20 ‌billion) of foreign long-term bonds last week, while net sales of short-term foreign bills were the lowest in seven weeks at 9.7 billion yen, Ministry of Finance data showed.

The outflows add to signs ‌that Japan is becoming a less reliable source of support for global bond markets as ‌higher domestic yields and expensive currency hedging reduce the appeal of overseas debt. That shift could add further pressure on government bond markets, with investors demanding higher yields as inflation stays sticky and public debt remains large.

Global bond yields ⁠climbed ​to multi-decade highs on Wednesday ⁠as the war in the Middle East pushed energy prices higher and stoked inflation concerns. U.S. Federal Reserve Chair ⁠Kevin Warsh said last week the central bank would "have work to do" if policymakers were not confident that ​underlying inflation was returning to its 2% target.

Data released last week showed annual U.S. ⁠inflation remained above the Fed's 2% target for a 65th straight month in July. Japanese investors bought a net 35.8 billion ⁠yen ​of overseas stocks last week, marking their third weekly net purchase in four weeks.

Foreign investors, meanwhile, bought a net 509.1 billion yen of Japanese long-term bonds in their second straight ⁠week of purchases. They also purchased a net 16.6 billion yen of short-term bills after two straight ⁠weeks of selling. Foreigners ⁠made a modest net purchase of 35.8 billion yen in Japanese stocks after net sales of about 763.4 billion yen in the previous week.

($1 = ‌158.3600 yen)