Japanese Turn Foreign-Debt Buyers as Dollar-Yen Rises Above 101

Japanese investors turned net buyers of foreign bonds after the longest period of selling in three years, adding to signs that Bank of Japan Governor Haruhiko Kuroda’s monetary stimulus is gaining traction.

The money managers acquired a net 514.3 billion yen ($5.09 billion) of overseas bonds and notes in the two weeks ended May 3, according to data released from the Ministry of Finance in Tokyo today. They had cut holdings of these securities in the six weeks through April 19, the longest run of net sales since January 2010.

The yen dropped below 101 per dollar for the first time in four years today, a month after Kuroda unveiled a plan to combat deflation by doubling the BOJ’s cash provisions in two years. The dollar and Treasury yields climbed after an unexpected slide in U.S. jobless claims rekindled speculation the Federal Reserve will start to reduce its monthly bond purchases, known as quantitative easing.

“Japanese investors seem to be starting to buy foreign bonds gradually,” said Yunosuke Ikeda, the head of foreign-exchange strategy at Nomura Securities Co. in Tokyo. “With U.S. yields likely to rise, the market is tilted toward dollar strength as the view is taking hold that an end to quantitative easing will be discussed sometime this year.”

While the BOJ’s policy isn’t aimed at foreign-exchange rates, Kuroda said last month that stimulus is expected to prompt domestic investors to shift to stocks and foreign debt from Japanese government bonds. A weaker yen typically makes the nation’s exporters more competitive.

A separate report from the ministry showed today that overseas investors cut their holdings of JGBs by 3.94 trillion yen in March, the most in three years. The securities have lost 4.7 percent in dollar terms since the BOJ’s announcement of monetary stimulus on April 4, according to a Bank of America Merrill Lynch index.

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