Japanese investors were net buyers of major sovereign debt from overseas in January, except for U.K. debt, 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 ($822 million), the most since May 2010, data from the Finance Ministry showed Monday. They also bought a net ¥469.7 billion 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. The Government Pension Investment Fund disclosed its portfolio details last month, showing a drop in its holdings of Japanese government bonds and a rise in its holdings of foreign stocks and bonds.
"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 USDJPY 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 in their biggest net sales since February 2012, Finance Ministry data showed.
Of the ¥3.42 trillion in net purchase of overseas securities — long- and short-term debt securities and equity and investment fund shares — ¥1.39 trillion was in dollars and ¥1.1 trillion in euro-denominated assets. About ¥1.9 trillion was invested in sovereign debt.
Japanese money managers invested ¥182.9 billion in Belgian securities in January, the most on record back to January 2005, while buying a net ¥71.1 billion in Singapore securities for their biggest purchase since April 2007.