Japanese investors step up overseas asset sales this year

FILE PHOTO: A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White
FILE PHOTO: A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White

(Reuters) - Japan's domestic investors are selling foreign equities and bonds aggressively this year, on concerns over monetary tightening by the world's major central banks and its impact across global equity and bond markets.

Domestic investors have sold a total of 1.58 trillion yen ($13.72 billion) worth overseas bonds and equities this year, according to Japan's Ministry of Finance data till the end of last week.

They sold 385 billion yen of equities and 1.2 trillion yen in bond markets, the data showed. The total selling of 1.58 trillion yen has already surpassed last year's entire sales of 1.5 trillion yen.

(Graphics: https://fingfx.thomsonreuters.com/gfx/mkt/mypmnjynevr/Japanese%20investments%20in%20overseas%20assets.jpg)

While the major central banks are moving into inflation-fighting mode, and starting to lift their ultra-low borrowing costs, the Bank of Japan (BOJ) is in no hurry to follow suit.

Inflation in Japan remains distant from BOJ's 2% target, its deputy governor Masazumi Wakatabe said earlier this month.

"Due to the combined effect of rising global yields, Japanese government bonds (JGBs) now offer more attractive returns to local investors," Antoine Bouvet, senior rates strategist at ING, said in a report.

"Combined with the risk of greater losses on bonds denominated in U.S. dollar and euro, this could make JGBs an increasingly attractive alternative."

Analysts also said currency hedging costs have increased for domestic investors, due to the rise in interest rates in overseas markets.

Another reason for the drop in Japanese investments in foreign equities is the relatively bigger declines in overseas markets. The Nikkei index has fallen 5% this year, compared to the MSCI World's 6% drop.

Last year, Japanese investors sold 3.61 trillion yen of U.S. equities but bought U.S. bonds worth 6.85 trillion yen. During the same time, they sold equities and bonds worth 538 billion yen and 1.76 trillion yen, respectively, in the European Union.

(Graphics: https://fingfx.thomsonreuters.com/gfx/mkt/xmpjojyodvr/Japanese%20investments%20in%20US%20and%20European%20assets.jpg)

($1 = 115.1800 yen)

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Vidya Ranganathan and Rashmi Aich)

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