MUFG’s Head of Research Derek Halpenny highlights that Japanese investors, especially banks and life insurers, were heavy sellers of foreign bonds in February and March, likely including USTs and EGBs, with record two‑month net sales. He suggests fiscal year-end factors and higher USD/JPY encouraged profit-taking, and future flows will indicate whether demand shifts back toward JGBs.

Record foreign bond selling by Japan

"What we now know following the release of cross-border flow data from the MoF [Ministry of Finance] in Japan is that Japanese investors were very much part of the bond market sell-off in March."

"The MoF data, released yesterday, revealed Japanese investors sold JPY 3,757bn worth of foreign bonds in March after selling JPY 3,422bn worth in February."

"A higher than anticipated USD/JPY level in addition to the strong rally likely encouraged profit-taking by banks while for life insurance companies, the holdings may have been running ahead of the planned asset mix and also encouraged foreign bond sales."

"Usually, you would expect to see these sales be followed by notable buying as the new fiscal year unfolds but these are not usual times and hence it will be interesting to see whether Japanese investors will have the appetite to resume buying quickly."

"Might this be a time when we see greater proportions of that selling recycled back into Japan’s domestic bond market?"

"There is certainly very little evidence yet to suggest Japanese investors are turning more toward JGBs but the scale of foreign bond buying in the coming months after a record two-month period of selling will be another gauge to assess possible shifts."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)