Tokyo July 22, 2022: Japanese investors cut holdings of overseas bonds for a record eighth week as Federal Reserve interest-rate hikes and accelerating global inflation sap their demand for foreign debt.
Funds in the Asian nation offloaded a net 919.6 billion yen ($6.7 billion) of overseas fixed-income securities in the week through July 15, according to flows data from the Ministry of Finance. The latest figures extend weekly sales to the longest since Bloomberg started collecting the data in 2005.
“Wariness over a further drop in Treasury prices remains deep-rooted amid concern over US inflation, and that is deterring appetite to buy overseas bonds,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute in Tokyo. “There may also be a move to cut losses.”
The latest period covers the time when a US government report published July 13 showed the consumer price index climbed to a new four-decade high of 9.1% in June, fueling expectations the Fed would step up its pace of tightening.
Concern about quickening inflation and central-bank rate hikes have weighed on bond prices throughout the world this year, led by Treasuries. US 10-year yields have risen to 2.89% from 1.51% at the end of 2021, while those on two-year notes have jumped to 3.13% from 0.73%.
“The period where Japanese investors face headwinds buying overseas debt has been prolonged, and the selling trend may last a bit longer,” NLI’s Ueno said. “When prospects become clearer for the US rate-hike path and where US yields may peak, the environment of one-way selling may change.”
