Japanese investors turn net sellers of foreign bonds in April

JAPANESE investors reversed course at the start of the new fiscal year, cutting their foreign bond exposure after US yields dropped on expectations that the Federal Reserve will pause rate hikes on slowdown worries.

They sold 1.35 trillion yen worth of overseas bonds in April after buying a total of 10.9 trillion yen in the previous three months, finance ministry data showed.

That comprised 1.1 trillion yen (S$13.3 billion) in long-term bonds and 203 billion yen in short-term bonds.

By investor type, banks sold 2.1 trillion yen, while insurance companies made a modest purchase of 629 billion yen.

“Institutional investors analysed the situation and probably decided that US Treasury yields might have peaked, but still, the situation is very uncertain, and the most likely case is a range-bound (US) bond market,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.

“On the other hand, yields in Japan had risen somewhat.”

Some analysts said higher hedging costs were also behind the net selling of foreign bonds last month.

Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities, said Japanese investors have historically begun each financial year as net sellers.

He calculated that Japanese investors have sold foreign bonds in the month of April on 13 occasions in the last 18 years with average net selling of 2.8 trillion yen.

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The data also showed that domestic investors bought 356 billion yen worth of overseas equities in the last month. REUTERS