The European Central Bank’s undercutting of the Bank of Japan with negative interest rates looks set to accelerate Japanese sales of German bunds, while falling short of the fund flows needed to weaken the yen.

Germany’s two-year bunds yielded 4 basis points less than equivalent Japanese government bonds on Thursday, the least since July, according to data compiled by Bloomberg.

Japanese investors dumped the most medium to long-term German bunds on record in March, Finance Ministry data going back to 2005 showed last month. They may shift money to JGBs from European debt, according to SMBC Nikko Securities Inc.

ECB President Mario Draghi and his fellow policymakers became the first major central bankers to charge fees on deposits and slashed the refinancing rate to a record 0.15 percent, bringing it closer to the BOJ’s past target of zero to 0.1 percent.

Treaties that founded the modern European Union prohibit the ECB from financing governments, while the BOJ’s JGB purchases, amounting to about ¥7 trillion ($68.2 billion) a month, have flooded financial markets with yen, helping weaken the currency about 9 percent versus the euro over the past 12 months.

“Some of the Japanese investors turned off by lower European debt yields may come back to JGBs,” said Makoto Noji, a senior debt strategist in Tokyo at SMBC Nikko Securities, one of the 23 primary dealers obliged to bid at government bond auctions.

“The ECB’s stimulus is not a bazooka from a quantity point of view,” he added, which makes it unlikely the widening yield gap will weaken the euro against the yen.

Germany’s two-year yields dropped below similar-dated Japanese borrowing costs last month for the first time since February. Draghi on May 8 said that gains in the single currency were hurting the central bank’s efforts to spur inflation as the euro rose to a 2½-year high against the dollar that day.

Euro-area inflation slowed to 0.5 percent last month from 0.7 percent in April, the European Union’s statistics office in Luxembourg said on June 3. The rate was below the median forecast of 0.6 percent in a Bloomberg News survey and less than half the ECB’s target for an eighth month. Meanwhile, Japan’s core inflation grew an annualized 3.2 percent in April — the most since 1991.

“The ECB is now working on the problems that plagued us for 10 years,” Finance Minister Taro Aso said in Tokyo last Friday.

“Increasing the money supply, the amount of money out in the market, if that goes well, would have somewhat of an effect.” Japanese investors sold a net ¥205.6 billion of medium- to long-term German bunds in April, the fourth straight month of sales, the Ministry of Finance reported Monday, while sales of the debt in March totaled a net ¥1.79 trillion.

Any drop in demand for German debt may be limited as Japan’s accelerating inflation increases pressure on its Government Pension Investment Fund to invest abroad. Policymakers are set to announce a plan to overhaul the world’s biggest pool of retirement savings.

“The government’s growth strategy will be aimed at boosting investments into risk assets such as stocks and foreign debt,” said Yuji Kameoka, the chief currency strategist at Daiwa Securities Co.

“It’s hard for yields on bunds to fall any further. The ECB’s action is unlikely to change the flow of money over the long term,” he added.

A flight to Japanese notes may be triggered if the ECB’s easing pushes yields on short-term German notes to negative levels, according to Tomohisa Fujiki, head of interest-rate strategy at BNP Paribas Securities (Japan) Ltd. The last time Germany’s two-year yields dipped below zero was in May 2013.

“A negative interest rate that is unable to weaken the euro is all pain no gain for the ECB,” said Daisuke Karakama, a markets economist at Mizuho Bank Ltd.

“There’s no quick fix to Europe’s Japanization of currency gains and low inflation,” he said.

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