improvisatory celinka: Japan investors buy foreign bonds for second week

Saturday, May 11, 2013

Japan investors buy foreign bonds for second week

By V. Phani Kumar, MarketWatch

HONG KONG (MarketWatch) ? Japan saw investment capital outflows in the week ended May 4 as local investors purchased foreign bonds for a second straight week and also turned buyers of overseas equities for the first time in four weeks.

Data released by the Ministry of Finance on Friday showed local investors made net purchases of 283.1 billion yen ($2.83 billion) /quotes/zigman/4868099/sampled USDJPY +1.0178% worth of overseas securities last week, more than the net ?117 billion that foreigners invested in the country.

Dollar jumps above ?100

The dollar rose above the key threshold of 100 yen Thursday for the first time in four years.

The data marks a reversal of the trend in recent weeks, and follows the Bank of Japan?s massive monetary stimulus announced on April 4. The outflows provide a tailwind to the U.S. dollar?s appreciation against the yen, which slipped below the key level of 100 per dollar in U.S. foreign exchange trade Thursday.

Mitul Kotecha, global head of foreign exchange strategy at Credit Agricole, said the net capital outflow from Japan was one of the three drivers that came together in a ?perfect storm? to lift the dollar above ?100 for the first time in four years. He added the ?perfect storm? looked set to help sustain the dollar?s move further higher. Read: Dollar above ?100 says as much about U.S. as Japan.

Kotecha listed the increase in the gap between yields on U.S. Treasurys and Japanese government bonds, and investors? improving risk appetite as the other drivers behind the yen?s recent fall.

?Net capital flows have reversed course over the last couple of weeks, a major shift compared to previous weeks... the total net outflow adds to [yen] pressures,? he said.

/quotes/zigman/4868099/sampled USDJPY 101.6200, +1.0239, +1.0178%

Dollar-yen

Six-month price chart

The U.S. dollar has climbed more than 16% against the yen so far in 2013.

The yield on 10-year Treasurys rose half a basis point to 1.812% overnight, while yields on 10-year Japanese government bonds were Friday at 0.69%, according to FactSet data.

Although interest rates in both countries are close to zero, the difference in bond yields is expected to encourage Japanese investors to purchase more Treasurys in search of higher returns, likely leading to capital outflows.

In the week ended May 4, Japanese residents bought foreign bonds in the amount of 309.9 billion yen ($3.10 billion), more than the ?204.40 worth of overseas bonds they purchased in the preceding week, according to figures from the Ministry of Finance.

Japanese investors also bought equities worth ?28 billion in overseas markets last week, their first such purchase in four weeks. But they also sold a net ?54.9 billion in money market instruments in overseas markets, resulting in net overseas purchases of ?283.1 billion.

Data released by the Ministry of Finance on Friday also showed Japan?s current-account surplus nearly doubled in March.

/quotes/zigman/4868099/sampled