Record High Since 2005 Statistics Compilation
Reflecting Expectations of BOJ Monetary Policy Revision
Possible Selling to Gain Yen Exchange Profit
[Asia Economy Reporter Lee Ji-eun] Last month, as the Bank of Japan (BOJ) raised the range of long-term interest rate fluctuations, the scale of foreign investors' sales of Japanese medium- to long-term government bonds reached a record high.
On the 3rd (local time), Bloomberg reported that from the 18th to the 24th of last month, foreign investors sold government bonds worth 4.8623 trillion yen (46.7685 trillion won). This is the largest scale since statistics began to be compiled in 2005. It surpasses the previous record sales volume of 4.8112 trillion yen in June of the same year.
Investors appear to have rushed to sell Japanese government bonds, anticipating that the BOJ might further revise its monetary policy. The Nihon Keizai Shimbun reported that the BOJ is considering raising its inflation forecast from the previous 2.9% to around 3% at the monetary policy meeting scheduled to be held from the 17th. This adjustment follows Japan's consumer price index reaching 3.7% last October, the highest in 40 years and 11 months, exceeding the BOJ's target of 2%. As a result, expectations have grown stronger that the BOJ may shift from its accommodative monetary policy maintained for 10 years to a tightening stance.
Some analysts suggest that as the yen strengthened, foreign investors sought to profit from exchange rate differences between the dollar and yen, leading to large-scale sales of government bonds. Takenobu Nakajima, senior interest rate investment strategist at Nomura Securities, said, "Considering that interest rates did not rise sharply during the period when foreigners sold government bonds, it seems they did not simply sell spot government bonds but implemented a relative value investment strategy combining futures and swaps." A relative value investment strategy refers to an investment approach that seeks arbitrage opportunities from disparities among various assets such as securities, futures, and currency values.
As the bond selling movement intensified, the BOJ began purchasing bonds. From the 28th to the 30th of last month, the BOJ bought bonds worth 2.3 trillion yen, and the total amount of government bonds purchased in December reached 17 trillion yen.
Meanwhile, the yen, which fell to its lowest value in 32 years last year, shifted to a strengthening phase this year. On the 3rd, in the Tokyo foreign exchange market, the yen briefly reached 129.54 yen per dollar during the session, settling in the 120 yen range for the first time since June.
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