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Japan's Portfolio Flows: Liquidation of US Assets Dominate
One of the major surprises this year has been that Japanese investors have been net sellers of foreign assets, even as the Japanese government and central bank pursue stimulative monetary and fiscal polices, and the yen trends lower. A break down of the data warns that there may be less to it than meets the eye. The sales of foreign assets is largely concentrated in the liquidation of US securities.
With the current account data, Japan reported earlier today on portfolio flows. As we suspected, based on tracking the weekly flows, Japanese investors sold a record amount of foreign notes and bonds in June. The MOF reported a net sale of JPY2.957 trillion notes and bonds. Japanese investors also sold JPY377.7 bln of foreign shares.
Foreign investors, for their part, seemed to largely switch from Japanese bonds to stocks. Specifically, they bought JPY764.5 bln of Japanese shares, while selling JPY756.3 bln of Japanese bonds. There was a liquidation of JPY1.1 trillion of Japanese bills, which may have been related to other trading activity.
Japanese bond and stock sales on a country basis for May were released. It appears that the bulk of the bonds that Japanese investors sold in May were US Treasuries and the roughly $30 bln were a record amount. This follows the $15.5 bln sales in April. May was the fifth consecutive month Japanese investors have reduced their US Treasury holdings and over this period sold about JPY8 trillion. .
Japanese investors bought about JPY1 trillion of European bonds in May, the most since January. This was largely accounted for by the purchases of bunds, which did a little more than offset the April sales. Japanese investors turned net sellers of French and UK bonds for the first time since November 2011. Japanese investors sold Australian bonds in May for the seventh consecutive month. Over that period, they sold about JPY1.55 trillion Among the emerging markets, Japanese investors were small net buyers of Korean, Thailand, Malaysia and Singapore bonds.
In terms of equities, US accounted for the bulk of Japanese investor liquidation in May. Of the JPY416.9 bln of foreign equities sold, the US accounted for JPY371 bln. Given role of Luxembourg as a financial center, we do not know what to make of Japan's purchases of JPY57 bln of equities there, except to note that it may be where the transaction took place, but not necessarily the securities bought. The only the country of note in which Japanese investors bought equities was the Netherlands.
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This behavior is really, really stupid. The Japanese investors need to sell JGBs, not foreign bonds and certainly not Treasuries. The volatility of the Yen is so high right now that it's very difficult for actual business to take place. The more the volatilty of the currency increases, the harder it becomes to not only do business, but it turns the nature of business being productive to essentially gambling. The accumulation of real wealth begins to disappear as the process of wealth creation basically turns into a casino. That's exactly what's happening in Japan right now.
I've started to believe that the process that Japan is undertaking right now is showing the first signs of extremely high inflation. The ultimate foundation of capitalism is built on qualitative beliefs like faith, trust, and confidence. When you have massive fluctuations in the currency, it makes it very difficult for genuine business to have faith in the environment. Eventually, as the inflation continues to worsen, commerce and business literally comes to a grinding halt. That's what Japan is beginning to experience. I'm looking at the movement in their FX markets and various other things; that's exactly what's beginning to happen.
The Japanese are selling foreign assets because they don't believe the weak Yen induced by Abenomics will last. They see it as profit taking at an attractive level.
Most of them have no inkling that the Yen might weaken a lot more in the future, as Japan's fiscal situation continues to worsen.
http://nipponmarketblog.wordpress.com/2013/05/01/%C2%A5-at-400-takeshi-f...
the hypothesis most Japanese investors have no inkling that the yen might weaken a lot more in the future does not seem to be able to be demonstrated. If a Japanese investor thought that while the yen may weaken, more likely it will strengthen in the future, wouldn't that lead to the same behavior?
"Kamikaze," loosely translated, is "full retard."
Marc,
Are they buying gold?
Eddiebe, I have not done any serious investigation, but it does appear that Japanese bullion demand has risen. Gold imports in the Jan-May period was 7,686 kilograms compared 2,994 kilograms in the same 2012 period. I read that on a metals web site and cannot verify its accuracy. http://www.silverdoctors.com/japan-insurance-gold-buying-doubles-on-yen-concerns/
So, the Japanese are selling US treasuries and the FED is going to taper. Who is going to buy US debt going forward?
that m/m short-term data from Japan can flip as quickly as the yen crosses back and forth over 100, so it's not anywhere near as significant as the 30-yr bond future, ZB, at a new low well below the 135'01 that supported it in 2011 and the 135'05 bottom of 2012.
while most of the focus is on the plunge in the 10-yr, ZN, very few are mentioning that ZB has been on a roller-coaster with reaction back to 136 after testing 134, and then falling again to 133'01 in some huge 2-handle/day oves. weak-hand bottom feeders at the new low got burned badly, which will scare off buyers from catching the falling knife, self-fulfilling selling. ZN is more affected by the 1-yr note which the Fed CAN control than the 30-yr, which it cannot control.
as others here have noted, if the Fed keeps up its $45 B / month purchases of 30-yr, pretty soon it will be the only buyer, sucking up bonds from everyone else. the thing about ZB breaking 135 and then 134 so easily to reach 133'01 is that it's bad news for ANY bond holder. this rout of bonds is one for the books and there is very little support at ~130 where the new low is probably some Fib level between 125 and 128, inclusive.
bottom line, from the weekly ZB chart, is that NOBODY has enough cash to support the entire bond market!
Just the FED, nothing has changed.
http://www.youtube.com/watch?v=po0vihsp_8I
[it's a You Tube video]
So are they buying Nikkei with the proceeds or are they buying hard assests abroad?
OR--it does seem that Japanese investors are buying some hard assets and buying or building points of production and distribution abroad, i.e, foreign direct investment.