What have the Japanese been Buying ?
With the balance of payments data released early today, Japan also reported a country breakdown of its portfolio investment flows. Japanese investors stepped up their capital outflows in October to JPY1.324 trillion or about $13.3 bln from JPY952 bln in September.
Recall that, confounding expectations, Japanese investors were net sellers of foreign assets from January through June. They repatriated roughly $150 bln. In four months for which there is now data, Japanese investors have bought almost $55 bln of foreign stocks and bonds.
Japanese investors bought JPY1.452 trillion of foreign bonds in October after JPY1.385 trillion in September. Although the amount was broadly similar, the composition was radically different.
In September, Japanese investors were large new buyers of US bonds and net sellers of rest of the world's bonds. In October, Japanese investors bought JPY148 bln US bonds compared with JPY1.732 trillion. Japanese investors doubled the amount of French bonds they bought (JPY239 bln) in October, over September (JPY117 bln). Japanese investors also bought JPY65.3 bln of Italian bonds, the most since June 2011. Overall, they bought JPY463.8 bln euro-denominated bonds.
Japanese investors also scooped up bonds from the dollar-bloc. They bought JPY130 bln of Australian government bonds and JPY189.2 bln over all, the most since June 2012 and is only the second month of net purchases since Nov 2012. Japanese investors purchased almost five times more Canadian bonds in Oct (JPY108 bln) than in September (a little less than JPY23 bln).
Another noteworthy development was that Japanese investors sold JPY36.1 bln of Singapore bonds. This may not seem like a larger amount, but it is the largest sell-off since 1998. We don't see a fundamental change in the macro outlook for Singapore and suspect it may be a function of the low rates. Yields out to five years are less than 1%. The Singapore dollar has lost about 2.2%, though it did gain about 1.3% against the US dollar in October after a 1.5% rise in September.
Turning to equities, Japanese investors sold almost JPY198 bln in October. Except for a minor JPY4.6 bln purchase in August, Japanese investors have been consistent sellers of foreign shares since July 2012. Over this time they have sold about JPY7.256 trillion (~$73 bln) of foreign shares.
US shares accounted for the bulk of the selling. Over the 16-month period, Japanese investors sold JPY4.170 trillion US shares. In October, US share sales were JPY138 bln (of the JPY198 overall net sales). In September Japanese investors sold almost JPY254 bln, of which the US accounted for a little more than JPY177 bln.
Japanese sales of European shares slowed, and there does appear to be a gradual shift toward booking purchases of euro area shares in Luxembourg. According to MOF data, Japanese investors bought JPY44 bln of Luxembourg shares after JPY21 bln of purchases in September. Over the 16-month period of selling, Japanese investors bought about JPy468 bln of "Luxembourg" shares, which as we say, likely reflects an account function and is better understood as a proxy for euro-denominated shares.
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