Foreigners lift JGB to record

Foreign investors made a record weekly purchase of Japanese government bonds last week, after the Bank of Japan (BOJ) maintained its ultra loose policy.

Investors also bought safe-haven debt amid worries about a possible banking crisis after the failure of US Silicon Valley Bank and Swiss lender Credit Suisse’s liquidity issues.

Data from Japan’s Ministry of Finance show that foreign investors bought a net ¥4.096 trillion worth of Japanese government bonds (JGB) with maturities of more than one year in the week ended March 18.

This is the largest amount since the ministry began publishing data in 2005.

The BOJ maintained ultra-low interest rates and held off from making changes to its controversial bond yield control policy at its monetary policy meeting on March 10, defying some expectations of a policy tweak.

JGB yields began falling sharply after the BOJ’s decision, and extended the declines as Silicon Valley Bank’s meltdown and Credit Suisse’s woes drove a flight to safe-haven debt.

Japan’s benchmark 10-year JGB yield, which was hovering at 0.5%, the top end of the BOJ’s policy band, before the BOJ’s policy meeting, fell to as low as 0.240% on March 14.

The BOJ meeting was the last one chaired by current Governor Haruhiko Kuroda before a change in the leadership. Kuroda’s second, five-year term ends on April 8.

With inflation exceeding the BOJ’s target, incoming governor Kazuo Ueda faces the challenge of phasing out the bank’s controversial bond yield control policy.

“The record amount of JGB buying underscores investors’ bet on the policy change,” said Kazuhiko Sano, a strategist at Tokai Tokyo Securities. “They needed to rush to buy back JGBs to cover their short positions.”