Japan's Investors Flee Foreign Bonds Amid Inflation Worries

Japanese investors sold foreign bonds for a second consecutive week due to persistently high inflation and expectations of higher interest rates. According to the Ministry of Finance, they unloaded a net 824 billion yen ($5.2 billion) of foreign long-term bonds through August 29. The outflows indicate that Japan is becoming less reliable as a source of support for global bond markets.

The high domestic yields and expensive currency hedging are making overseas debt less appealing to Japanese investors. This shift could put additional pressure on government bond markets, with investors demanding higher yields due to sticky inflation and large public debt.

Global bond yields reached multi-decade highs on Wednesday as the war in the Middle East pushed energy prices higher and stoked inflation concerns. US Federal Reserve Chair Kevin Warsh stated that the central bank would 'have work to do' if policymakers were not confident that underlying inflation was returning to its 2% target.