Japanese investors sold a record 4.256 trillion yen ($37.24 billion) of foreign bonds in April, the first month of their 2017/18 financial year, data from the Ministry of Finance showed on Thursday. The Japanese investors' foray into global bonds had stopped abruptly in November as US bond markets tumbled following Donald Trump's surprise election to US President.
The investors suffered another setback after French bonds, one of their favourite assets, crumbled earlier this year on worries about the French presidential election. During the five months from November to April, Japanese investors sold 8.7 trillion yen of foreign bonds. They were net buyer of foreign bonds in the preceding 17 straight months, gobbling up more than 34 trillion yen worth.
"During the January-March quarter, investors were looking to unwind their holdings after suffering losses. That continued into April," said Hiroko Iwaki, senior strategist at Mizuho Securities. But market participants say Japanese investors will soon come back to foreign bonds because the fundamental factor that pushed them to foreign bonds - low domestic yields due to the Bank of Japan's negative interest rates policy - is still in force.
Some traders said there was full-fledged buying in foreign bonds this week by Japanese investors back from the Golden Week holidays last week and after centrist Emmanuel Macron won the French presidential election. Hideo Shimomura, chief fund manager at Mitsubishi UFJ Kokusai Asset Management, said Japanese buying was likely to start picking up this month.
"They may not hurry to buy because everyone thinks the Fed is going to raise rates in June. And if expectations of a September rate hike grow, the current yield levels may not look that attractive after the currency hedge," said Shimomura. "Considering the hedge costs, investors may prefer French bonds," he added.
Separate data showed Japanese investors sold 943.5 billion yen of French bonds in March, their fifth straight month of selling during which they dumped almost 3.0 trillion yen (24.16 billion euros) of French bonds. Tomoaki Shishido, senior economist at Nomura Securities said Japanese selling in April was likely to have centred on French bonds. On the other hand, Japanese investors were net buyers of US bonds for the first time in five months, taking up 932 billion yen worth in March. Country breakdown data will become available one month after the preliminary capital flow data.