Japanese investors are going crazy for America

Japan is clamouring to get a piece of US debt right now, with a record number of bonds bought by investors from the country during the month of July.

According to new research from HSBC’s Emerging Markets Fixed Income desk, led by strategist Dayeon Hong, retail investors in Asia’s second largest economy poured almost $50 billion — of a cumulative $58 billion in outflows — into US debt in the month, more than any on record.

Here’s the key extract from Hong and his team (emphasis ours):

“In July, Japanese investors recorded their largest monthly investment into overseas bonds since 2010: Monthly data provided by the Ministry of Finance (MoF) reveals that USD58bn worth of outflows from Japan into international bonds was recorded in July. Of this, USD48bn was into US bonds, which have continuously been a distinct target for Japanese investors.”

Here’s HSBC’s chart, showing just how massive the investment into US government debt from Japan is in comparison to other nations:

Japanese investors are increasingly looking overseas to make their investments, given the low growth, negative interest rate environment in the country, which is making it increasingly difficult to make a significant return on any domestic investment

This is especially true for government debt, which is providing a negative yield as far as 10 years in the future.

The yield on a US 10-year bond, by contrast, is currently at 1.62%, despite being close to a record low. That discrepancy in yield makes it a prudent investment for the Japanese people looking for a very steady way of making money with little real risk involved.

American debt may be the fixed income purchase of choice for Japan’s retail investment crowd, but coming in a distant second is French debt. Here’s HSBC once again (emphasis ours):

“Another USD8bn was invested into French bonds. Within EM, Mexico, once again received the largest flows of USD372m, followed by India (USD220m) and Indonesia (USD110m). The latest weekly flows data release shows that Japanese investors sold USD12.8bn worth of offshore bonds during the week ending 2 September. While this was the first week of net selling in 11 weeks, it is too early to conclude that Japanese investors’ diversification away from low-yielding JGBs has ended.”

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