Japanese investors are bulk buying foreign debt

Japanese investors were net buyers of major overseas sovereign debt in January, except that of the U.K., underscoring their appetite for higher returns as the Bank of Japan’s unprecedented easing suppresses bond yields.

Net purchases of Canada’s sovereign bonds maturing in more than a year rose to 99.5 billion yen ($822 million), the most since May 2010, data from the Ministry of Finance showed Monday.

They also bought a net 469.7 billion yen of French government bonds, the biggest amount in seven months.

Investors in Japan are increasingly diversifying their assets as they seek those with higher yields.

Government Pension Investment Fund disclosed its portfolio details last month, showing a drop in Japanese government bond holdings and a rise in overseas stocks and bond holdings.

“Widening U.S.-Japan interest rate differentials are likely to promote continued portfolio flows from Japan, particularly as we enter the new fiscal year in April when new investment strategies are usually implemented,” Barclays Plc currency strategists Shinichiro Kadota and Mitul Kotecha wrote in a research note to clients. “Such flows may keep U.S. dollar and Japanese yen under short-term upward pressure.”

The difference in yield between two-year government notes in the U.S. and Japan widened to 71 basis points on Friday, the widest gap this year.

Investors in Japan avoided U.K. bonds, selling 162.1 billion yen in their biggest net sales since February 2012, the Finance Ministry data showed.

Of the 3.42 trillion yen in net purchase of overseas securities - long- and short-term debt securities and equity and investment fund shares - 1.39 trillion yen was in U.S. dollars and 1.1 trillion yen in euro-denominated assets. About 1.9 trillion yen was invested in sovereign debt.

Japanese money managers invested 182.9 billion yen in Belgian securities in January, the most on record back to January 2005, while buying a net 71.1 billion yen in Singapore securities for their biggest purchase since April 2007.

Bloomberg