Japan's Bond Sales Soar Amid Inflation Fears

Japanese investors sold foreign bonds for the second consecutive week in late August, according to data from the Ministry of Finance. The sales totalled a net 824 billion yen ($5.20 billion), with the largest outflow being in long-term bonds. This trend suggests that Japan is becoming less reliable as a buyer of global bonds due to higher domestic yields and costly currency hedging.

The sales come at a time when global bond markets are under pressure from persistently high inflation and expectations of higher interest rates. The US Federal Reserve has expressed concerns about underlying inflation, which remained above its 2% target for a 65th straight month in July. Global bond yields climbed to multi-decade highs on Wednesday due to the war in the Middle East pushing energy prices higher.

Japanese investors did buy a net 35.8 billion yen of overseas stocks last week, marking their third weekly net purchase in four weeks. However, this was not enough to offset the outflows from bond markets. Foreign investors continued to purchase Japanese bonds and stocks, with a net 509.1 billion yen of long-term bonds bought and a modest net purchase of 35.8 billion yen in Japanese stocks.