Japanese investors extend foreign bond selling to fourth week, pace slows

Japanese investors sold foreign bonds for a fourth straight ​week through October 10, extending a retreat from ​overseas debt that has pushed ‌this year’s ​net sales to the highest since 2022, though the pace of selling has slowed. Japan’s big life insurers have stayed largely on the sidelines of ‌the selling of a net 339.7 billion yen ($2.15 billion) of foreign long-term bonds.

The modest amount is broadly in line with the previous week's revised 345.7 billion yen and well below the 1.9 trillion yen sold in ‌the week to September 19, finance ministry data show. The withdrawals have fuelled expectations that major asset managers ‌may bring funds home, as 30-year Japanese government bond yields have nearly doubled over two years to around 4%, making them competitive with currency-hedged U.S. Treasuries.

Japanese investors have withdrawn roughly 5.34 trillion yen from overseas bonds this year, the most ⁠since 2022. But ​the outflows have come ⁠mainly from outside the life insurance sector, which manages about $2.5 trillion in assets, a quarter of it overseas.

Life insurers account for ⁠just 289 billion yen of this year’s net foreign bond sales, MOF figures show. "Higher yields have brought the ​buyers back to JGBs," said Shoki Omori, chief fixed-income strategist for Japan at Deutsche Bank. "They have ⁠not brought the money home."

Japanese investors also sold a net 760.6 billion yen of foreign stocks last week, partly reversing the ⁠previous ​week's net purchase of 1.33 trillion yen. Foreign investors bought a net 1.08 trillion yen of Japanese long-term bonds, the largest amount in four weeks. They also purchased a net 841.6 billion yen ⁠of short-term bills.

In Japan's stock market, foreign investors bought a net 3.52 trillion yen of local equities, ⁠the largest amount since ⁠April 11. The Nikkei slumped 4.9% on Thursday, however, after media reports of distressed debt at U.S. cloud-computing provider CoreWeave, while hot US inflation data boosted concerns about ‌higher interest rates.

($1=157.9700 ‌yen)