Foreigners Embrace Japan Debt As a Haven (Friday, September 21, 2012 C1&C2)
Foreign investors bolstered their ownership of Japanese government debt to the highest level on record last quarter, capping an incongruous trend that has seen buyers flock to Japan despite paltry bond yields and the country’s mounting debt burden.
Offshore investors owned about ￥82 trillion, or 8.7%, of all Japanese government debt at the end of June, according to quarterly figures released by the Bank of Japan on Thursday. That is the highest since 1979 and about 20% higher than a year earlier. At the end of last year, China held ￥17.954 trillion in outstanding Japanese bonds, including government and private-sector securities, making up 19.6% of foreign holdings of Japan debt. That makes the country the largest single overseas investor in such debt, with the U.K. second at 12.5%.
For years, many investors were derisive of Japanese debt, which offered among the lowest yields. Currently, the 10-year yield is less than 1%. But the recent wave of quantitative easing around the world has brought down interest rates in other developed nations, notably the U.S. and Germany. As well, Japan is suffering a period of deflation, meaning the value of Japanese interest rates actually is rising over time. And, with the yen rising as more money flows into Japan, returns for foreign investors are growing.
Still, some investors remain bearish on Japan. Jeffrey Sica, the president and chief investment officer of Morristown said he is staying away from Japanese government bonds, given Japan’s high debt loads and unattractive yields. “It’s one of the most indebted nations, and despite their economic stimulus, I think buying Japanese debt at these levels is senseless.” according to Mr. Sica, who manages around $1 billion in client