Japan’s Ministry of Finance reports portfolio flows on a week weekly basis. It provide more timely, even if less detailed information than contained in the monthly balance of payments data.
In the first few months of the year, Japanese investors were net sellers of foreign stocks and bonds. However, this has changed in the second quarter. Japanese investors were net buyers of foreign bonds for seven of the past eight weeks. Last week, they bought JPY1.09 trillion of foreign bonds, which is the third highest of the year. Ironically, it appears they sold the when bonds were weak and are returning to the buy side when bonds are firm. Japanese investors bought an of JPY403 bln of foreign bonds a week last year, but despite the recent buying, have been net sellers of JPY80.4 bln on average a week this year.
Japanese investors have been more consistent buyers of foreign equities. They have been net buyers for ten of the past 12 weeks. Their average weekly purchases this year are about JPY115.2 bln, not far off last year’s weekly average of nearly JPY119 bln.
Foreign investor were net sellers of Japanese bonds and stocks last week, but in H1 had stepped up their buying compared with 2016. The bond sales snaps a five-week accumulation phase. Recall that late last year and earlier this year, the premium for dollars in the cross currency swaps was such that dollar-based investors could swap the dollars for year and buy a short-dated Japanese bill or coupon and earn more than US Treasuries. The cross currency swap market has correction and the financial arbitrage opportunity has closed Last week was the second consecutive week that foreign investors were net sellers of Japanese equities.
Year-to-date, foreign investors have been net buyers of a nearly JPY2.0 bln of Japanese shares on average. Last year, here were net sellers of nearly JPY110 bln a week. Foreign investor have also stepped up their purchases of Japanese bonds, even though they were net sellers last week. This year, foreign investors have purchased a weekly average of nearly JPY113 bln of foreign stocks, compared with a weekly average of JPY84.2 bln in 2016.
The dollar finished last week a touch below JPY110.90. It briefly touched JPY110.95 yesterday. A move above JPY111.50 may lift the tone, but the JPY112 area may prove more formidable.