Commerzbank's Volkmar Baur reports that Japanese investors have been net sellers of foreign bonds, offloading JPY 5 trillion (approximately EUR 30 billion) more in foreign bonds than they have purchased over the past twelve months [1]. This marks only the third significant episode of net selling by Japanese investors in the past twenty years, with previous instances occurring in 2013-14 and in the aftermath of the pandemic during 2022-23 [1].
The shift in Japanese investment behavior is noted to have implications for global bond markets. Baur highlights that the reliability of Japanese investors as buyers of foreign bonds can influence global yields, suggesting a connection between the recent rise in global yields and the growing reluctance of Japanese investors to allocate funds abroad [1].
While Japanese investors had been net sellers of long-term French bonds over the past year, they have returned as buyers in the past three months. As a result, Baur argues it is unlikely that Japanese investors were responsible for the recent dislocations in the French bond market [1].
In contrast, Japanese investors have primarily been selling US bonds in recent months. This selling activity has indirectly provided some support to the euro against the US dollar, according to Commerzbank [1].
CONCLUSION
Japanese investors' shift from being net buyers to net sellers of foreign bonds has contributed to changes in global yields and currency dynamics. Their recent return to French bonds and continued selling of US bonds are notable trends, with implications for both bond and currency markets.