Japanese bonds log weekly foreign outflows on BOJ policy caution

Foreign investors pulled money out of Japanese long-term bonds for a second week through July 26 as they cautiously waited for the Bank of Japan's (BOJ) monetary policy decision for clues about the pace of its potential interest rate hikes.

According to data from Japan's Ministry of Finance released on Thursday, foreign investors withdrew a net 184.6 billion yen ($1.24 billion) from Japanese long-term bonds following 990.7 billion yen worth of net sales in the previous week.

The Bank of Japan kept interest rates steady on Thursday but raised its inflation forecast for the current fiscal, saying risks to the price outlook were "roughly balanced," a sign of its increasing conviction that Japan will make progress towards meeting the prerequisite for further interest rate hikes.

Foreigners have, however, still invested approximately 10.89 trillion yen into long-term Japanese bonds so far this year compared with about 266 billion yen worth of net sales in the same period last year.

Japanese short-term bills faced net foreign outflows of 1.95 trillion yen last week, which reversed a net 1.9 trillion yen weekly purchase the prior week.

Japanese stocks, meanwhile, attracted a net 743.3 billion yen worth of foreign money, the largest weekly cross-border investment since May 3, driven by optimism over a long-awaited trade deal with the U.S.

Japanese investors added a net 206.3 billion yen worth of foreign stocks in a second successive week of net purchases in overseas markets.

They, however, divested a net 331.6 billion yen worth of foreign long-term bonds, ending their six-weeks-long trend of net purchases.

($1 = 148.8400 yen)