Foreigners pile into Japanese bonds amid rising bets of end to negative rates

By Thomson Reuters Mar 14, 2024 | 2:53 PM

(Reuters) – Foreign investors significantly increased their purchases of Japanese bonds last week amid growing expectation that Japan may soon end its long-standing negative interest rate policy and start increasing rates this year. They acquired a massive 1.15 trillion yen (about $7.8 billion) of long-term Japanese bonds on a net basis last week, the largest weekly net purchase since early-April 2023, data from the Ministry of Finance showed.

Japanese short-term debt securities drew a net 2.22 trillion yen in overseas capital last week after about 2.75 trillion yen of net purchases in the prior week.

The Bank of Japan will debate ending its negative interest rate policy next week if Friday’s preliminary survey on big firms’ wage talks outcome yields strong results, sources said, marking a landmark shift away from its decade-long stimulus programme.

Yields on one-year Japanese treasury bills, which traded sideways through 2023, are up a relatively sharp 8 basis points in 2024 to a near almost decade high of 0.067%, while six-month yields, negative for eight years, leapt above zero last week.

Bond yields rise when prices fall. Higher yields can attract new investors.

Meanwhile, overseas investors were net buyers of Japanese equities for a second consecutive week, securing 198.35 billion yen in stocks, even as shares pulled back from record highs. The Nikkei share average shed about 0.56% last week, snapping its five-weeks-long winning streak. Foreign investors bought cash equities and derivative contracts of about 176.39 billion yen and 21.96 billion yen, respectively, on a net basis last week.

Japanese investors, meanwhile, secured about 1.58 trillion yen of long-term foreign bonds, logging the largest weekly net purchase since Jan. 12. They also poured about 6.6 billion yen into short-term debt instruments.

Conversely, domestic investors pulled roughly 616.5 billion yen out of foreign equities as they extended net selling into a second co consecutive week.

($1 = 147.8900 yen)

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Mrigank Dhaniwala)