Japan: Bond outflows reshape global yields - Commerzbank

Commerzbank's Volkmar Baur highlights Japanese investors' net selling of foreign bonds and its implications for global yields. Although Japanese investors have recently returned as buyers of French bonds, their selling of US bonds has provided some support to the euro against the dollar.

Japanese flows and Euro support

"Over the past twelve months, Japanese investors have sold JPY 5tn (around EUR 30bn) more in foreign bonds than they have purchased. Over the past 20 years, there have been only three episodes in which Japanese investors were significant net sellers of foreign bonds on a rolling 12-month basis: in 2013-14, in the aftermath of the pandemic in 2022-23, and over the past three months."

"Indirectly, however, it clearly matters for global bond markets whether Japanese investors are reliable buyers of foreign bonds month after month or whether, as has been the case over the past twelve months, they turn into net sellers. There is likely a connection between the rise in global yields and the growing reluctance of Japanese investors to allocate money abroad."

"While Japanese investors have indeed been net sellers of long-term French bonds over the past twelve months, and cumulative net purchases since early 2014 have declined noticeably since the pandemic, they have already returned as buyers over the past three months. It therefore appears unlikely that Japanese investors were responsible for, or even materially contributed to, the recent dislocations in the French bond market."

"Interestingly, however, Japanese investors have primarily been selling US bonds in recent months. From that perspective, Japanese bond flows have recently provided some support to the euro relative to the US dollar."