Japanese Yen Vulnerable to Further Depreciation Amid Accelerated JGB Selling

Japanese Government Bond (JGB) selling by foreign investors has accelerated, with net outflows of ¥1.25tn last week. This brings the year-to-date foreign net purchases to a low of ¥4.99tn, the lowest cumulative level since early February.

Despite higher JGB yields, foreign demand for these bonds remains weak, increasing the risk of further bond unwinding. Meanwhile, Japanese investors have been buying overseas assets, purchasing ¥1.14tn of foreign bonds and ¥1.39tn of foreign equities in a single week, the second-largest weekly equity purchase this year.

The flow mix points to further depreciation of the Japanese Yen (JPY), as foreign selling of JGBs and stronger Japanese buying of foreign assets weaken support for the currency.