Foreign ownership of Japanese debt at 8.3%

Bloomberg

Foreign ownership of Japanese government bonds has risen to its highest level in more than 30 years, signaling increasing dependence on investors abroad to finance the world’s largest public debt.

Overseas investors owned 8.3 percent of JGBs as of the end of the fiscal year in March, the Bank of Japan said in a report Tuesday. This was the most since the end of fiscal 1979, the earliest for which comparable data are available.

On a quarterly basis, the level rose to 8.6 percent in the third quarter of 2008 and it has fluctuated between 8.3 percent and 8.5 percent in the last three quarters.

The crisis in Europe has increased demand for the yen and Japanese bonds as a haven, even as ratings agencies have downgraded the nation’s debt.

Yields on benchmark 10-year debt declined to a nine-year low of 0.79 percent on June 4.

The government has tapped the nation’s ¥1.513 quadrillion in household wealth to finance its public debt burden. This pool of funds has stagnated over the years as the population ages and deflation weighs on growth.

Households had ¥835 trillion in cash and deposits at the end of March, up 2.3 percent from the same period in the previous year, for the sixth annual rise, reflecting a preference for liquid assets over bonds. Liquid deposits rose 4.9 percent to ¥311 trillion over the period, exceeding the 0.6 percent rise in term deposits.

Some 55 percent of total financial assets of Japanese households were in cash and deposits, compared with 14.5 percent in the U.S., according to the central bank.

Fitch Ratings downgraded Japan’s local currency long-term debt rating to A-plus in May, the fifth-highest ranking.