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On Wednesday, January 27, 2021, Japan’s Ministry of Finance reported that foreign bond investment in Japan had decreased significantly from the previous week’s figure of ¥-344.2B to ¥-715.4B.
The significant decline in foreign bond investment is partially attributed to the strong appreciation of the Yen against the US Dollar in the spot market, which decreased foreign investor appetite for Japanese debt.
The month-on-month decrease in foreign bond investment came after a sharp rise in the previous month, when foreign investors purchased ¥1.7 trillion of Japanese bonds.
The decline in foreign bond investment has been generally attributed to the fact that the recent weak performance of the U.S. dollar against a basket of major currencies, as well as the uncertainty of the global economic recovery in general, has caused foreign investors to be hesitant in investing in Japanese debt.
Analysts suggest that if the US dollar continues to depreciate, Japanese bond investment figures may remain depressed over the near term, as foreign investors prefer to invest in the US and other relatively safe markets with higher yields.
In the longer term, however, foreign investors may still choose to invest in Japanese bonds, especially if the risk-free rates offered on other markets show signs of retreating.
In conclusion, the significant decrease in foreign bond investment in Japan in January is largely attributed to a weaker US dollar and concerns about the global economic recovery. Although the decrease may continue in the near term, the bond market could potentially still attract some foreign capital in the longer term.
