Japan cuts Treasury purchases as demand falls

TOKYO • Japanese investors are slashing their purchases of US government bonds, the latest sign of waning demand for Treasuries as the US Federal Reserve starts to rein in its balance sheet.

Investors bought ¥597.7 billion (RM23.91 billion) of American sovereign bonds in August, down about 54% from purchases in July, according to Finance Ministry (MoF) balance-of-payments data released yesterday.

Their appetite for European debt also fell, turning net sellers of German and French debt after buying heavily in July.

The reduction in appetite for debt in US and Europe came as tensions on the Korean peninsula intensified and as political concern grew that the US government may be forced to temporarily shutdown.

Demand from foreigners at US bond auctions for 10-year and 30-year securities over the past six months has also slipped as central banks in the US and Europe prepare to wind back quantitative easing programmes.

“Investors turned nervous about buying foreign bonds in general as geopolitical tensions in North Korea intensified,” said Tsuyoshi Ueno, Tokyo-based senior economist at the NLI Research Institute.

“August was the month when investors became concerned about the US debt ceiling issue.”

Investors sold ¥539.8 billion worth of German sovereign bonds in August, the MoF data show, after buying net ¥959.4 billion in July.

They turned net sellers of French bonds for first time since April, selling ¥604.6 billion in French sovereign bonds, having bought ¥1.17 trillion in July.

“Investors may have taken a pause after buying European bonds actively as the euro limited its gains and German bond yields drifted down,” said Eiichiro Miura, Tokyo-based portfolio manager at Nissay Asset Management Corp.

While investors cut purchase in US and became net sellers of German and French bonds, Canadian sovereign bonds saw the largest inflow in 10 months.

Investors based in Japan bought a net ¥99 billion worth of Canadian sovereign bonds in August, the largest since October last year and up from ¥22.6 billion in July.

“High bond yield levels in Canada have been attracting interest from investors following the central bank’s credit tightening efforts,” NLI’s Ueno said.

“Prospects of a higher Canadian currency may also be attracting investor interest.”

Sovereign bonds refer to securities issued by governments, agencies and local authorities and carry original maturities of more than one year. — Bloomberg