(Corrects time period in first paragraph)
TOKYO Aug 20 (Reuters) - Foreigners' net purchases of Japanese government bonds in July were the biggest in over two years, industry data released on Wednesday showed, against a backdrop of falling global yields and rising risk aversion.
Data from the Japan Securities Dealers Association showed that foreign net purchases of JGBs, excluding treasury bills, totalled 1.28 trillion yen, the largest amount since June 2012.
"Foreign buyers were net sellers of JGBs the previous month, and they had to allocate their funds somewhere," said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"Some of that money came back in July, as global tensions rose," she said.
Conflicts in the Middle East flared last month, in addition to rising fears about the economic impact of international sanctions on Russia for its support of pro-Moscow insurgents in Ukraine. These factors all prompted investors to seek safety in fixed-income assets, pushing down global yields.
Moreover, the European Central Bank cut all its interest rates in June and promised long-term cheap loans to banks from September. Investors are increasingly betting the ECB will eventually take quantitative easing steps.
Money market traders now see an even 50 percent chance of an ECB asset-purchase programme in the coming year, a Reuters poll found on Monday. A previous survey showed only a one-in-three chance.
Yields on German 10-year Bunds - the benchmark for euro zone borrowing costs - plumbed record lows last month, and hit a fresh nadir of 0.952 percent last week.
The benchmark 10-year JGB was at 0.510 percent on Wednesday, up 1.5 basis points on the day, and not far from a 16-month low of 0.495 percent touched several times this month.
Under its own quantitative easing scheme, the Bank of Japan buys the equivalent of 70 percent of new JGB issuance every month in its bid to stoke inflation and spark a sustainable economic recovery. (Reporting by Lisa Twaronite; Editing by Simon Cameron-Moore)