Japanese investors sell overseas bonds for 2nd week on inflation fears

Japanese investors are withdrawing funds from foreign bonds for the second consecutive week due to rising inflation concerns, according to Ministry of Finance data released on August 29. The net sales of long-term foreign bonds totaled 824 billion yen ($5.20 billion), while short-term foreign bill sales reached a seven-week low of 9.7 billion yen.

The outflows highlight Japan's diminishing role as a reliable buyer of global bonds, as high domestic yields and costly currency hedging make overseas debt less appealing. This trend could place additional pressure on government bond markets, with investors demanding higher yields amid persistent inflation and substantial public debt.

Global bond yields have surged to multi-decade highs, driven by the Middle East conflict and energy price inflation. Federal Reserve Chair Kevin Warsh warned that the central bank may struggle if policymakers are not confident that inflation will return to its 2% target. Over the past four weeks, Japanese investors have consistently bought net amounts of overseas stocks.

Meanwhile, foreign investors have purchased net amounts of Japanese long-term bonds for two consecutive weeks and short-term bills after two weeks of selling.