In July, foreign investors bought a record amount of long-term Japanese bonds amid ballooning global debt and waning expectations for a policy change from the Bank of Japan.
Overseas funds bought a net 5.06 trillion yen ($37.4 billion) of Japanese bonds, mostly government bonds, exceeding the 4.1 trillion yen net sell-off in June 2020 record level since.
The Japanese bond market has been hit by frequent speculative attacks this year, with traders betting that accelerating global inflation will force the Bank of Japan to adjust policy. However, concerns about inflation have now given way to worries that higher interest rates in much of the world will dampen economic growth.
The yield on Japan’s benchmark government bond fell to a low of 0.175% in July, before breaking above the Bank of Japan’s benchmark of 0.25% in June. Last month, the Bank of Japan stuck to its low interest rates, its benchmark yield cap of 0.25 percent and an unprecedented policy of asset purchases. Masafumi Yamamoto, chief foreign exchange strategist at Mizuho Securities, said:
“Overseas investors bought JGBs in July as yields stopped sharply rising and falling, and the increasing likelihood of the Bank of Japan removing its yield curve control may also be a factor. Expectations in the domestic market may also prompt overseas counterparts to buy.”