By Yoshiko Mori
TOKYO, July 4 (Reuters) - Buying of foreign bonds by Japanese investors dived last month in response to the perceived risk of holding foreign assets in the face of a tumbling U.S. currency, traders said. ADVERTISEMENT
Ministry of Finance data showed on Thursday that net buying of foreign bonds, excluding bills, sank to a preliminary 106.5 billion yen ($888 million) in June from 995.8 billion yen in May and 1,962.8 billion yen in April.
Private investors' growing aversion toward foreign assets contrasts sharply with the massive investment abroad by Japanese monetary authorities, which have used proceeds from their dollar-buying interventions to buy mainly U.S. Treasury bonds to offset a surplus in the balance of payment.
"In terms of cancelling out (Japan's) balance of payment surplus, it is only natural for official accounts to try to balance out the surplus when the private sector won't," said Masayuki Kichikawa, senior economist at Asahi Life Asset Management Co.
To alleviate the upward pressure on the yen as money flows into Japan, monetary authorities were estimated to have spent $18.56 billion in its dollar-buying, yen-selling intervention in June. The government wants to stem the yen's rise because it could pose risks to the fragile, export-led economic recovery.
Thanks to Japan's currency interventions, the dollar has recovered some ground to around 120.12/22 yen early on Thursday compared to a nine-month low of 118.36 yen set on June 28.
FOREIGN INVESTMENT IN JAPAN BONDS FALLS
Foreign investors' buying in Japanese bonds also fell, to 481.9 billion yen ($4.02 billion) in June from 894.9 billion yen in May.
Experts said the incentive to take money abroad has been hampered by tumbling U.S. stock prices, because many global investors have had to offset losses there by selling off assets elsewhere.
U.S. stocks edged up on Wednesday as investors did some last-minute buying of technology stocks, but many indices are still at multi-year lows.
The technology-laced Nasdqaq Composite Index (NasdaqSC:^IXIC - News) gained 1.65 percent on Wednesday to end at 1,380.17 after sinking to five-year lows in the past two sessions. The benchmark Standard & Poor's 500 index (CBOE:^SPX - News) fell to a 4-1/2-year low on Tuesday.
Foreign investment in Japan's debt market has also been discouraged by a recent rally that drove the benchmark 10-year bond yield to an eight-month low of 1.300 percent.
"Since mid-June, the key support level for the 10-year Japanese government bond fell to 1.300 percent from 1.350 percent. The fall in the absolute returns on JGBs must have been a set-back for foreign investors," said Naoki Suzuki, investment analyst at Mizuho Securities.
Net buying in Japanese stocks also plunged, to 134.9 billion yen ($1.13 billion) from 931.7 billion in May. Japanese investment in foreign stocks was steady at 646.1 billion yen ($5.39 billion) compared to 599.1 billion yen. ($1=119.92 Yen)