Foreign Ownership of Japanese Debt Rises to Record on Europe

Risk-Adjusted JGBs Beat Treasuries, Bunds on BOJ
The advance in Japan’s debt yesterday coincided with a jump in domestic shares, with the Topix index climbing 1.7 percent. Photographer: Kiyoshi Ota/Bloomberg

Foreign ownership of Japanese government debt rose to a record in 2011, while Japanese households’ holdings fell to the lowest since 2005, signaling increasing dependence on investors abroad to finance the world’s largest public debt.

Overseas investors owned 8.3 percent of JGBs as of the end of the fiscal year in March, the Bank of Japan said in a report released in Tokyo today. This was the highest since 1979, the first year for which comparable data is available. Japanese households owned 3 percent of issued bonds.

The crisis in Europe has increased demand for the yen and Japanese bonds as a haven, even as ratings agencies have downgraded the nation’s debt. Yields on benchmark 10-year debt reached a nine-year low of 0.79 percent on June 4, and were at 0.805 percent at 4:06 p.m. in Tokyo today.

Japan’s government has tapped the nation’s 1,513 trillion yen ($19 trillion) in household wealth to finance its public debt burden. This pool of funds has stagnated over the years as the nation’s population ages and deflation weighs on growth.

Households had 835 trillion yen in cash and deposits at the end of March, up 2.3 percent from the same period in the previous year, for the sixth annual rise, reflecting a preference for liquid assets over bonds. Liquid deposits rose 4.9 percent to 311 trillion yen over the period, exceeding the 0.6 percent rise in term deposits.

Some 55 percent of total financial assets of Japanese households were in cash and deposits, compared with 14.5 percent in the U.S., according to the central bank.

Foreign currency deposits rose 3.4 percent to 5.79 trillion yen in fiscal 2011, the highest since 2004.

Fitch Ratings downgraded Japan’s local currency long-term debt rating to A+ in May, the fifth highest ranking.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE