(Fixes typo in first paragraph)
By Hideyuki Sano and Dominic Lau
TOKYO, April 11 Japanese investors repatriated
record amounts of money through February and March as they
reaped the Bank of Japan's new super-loose policy bonanza for
markets, but the seasonal rush home is showing the first signs
of reversing as a hunt for yield begins.
The latest data from Japan's Ministry of Finance showed
investors continued to sell foreign assets and bring money into
the country in the first week of April, when Japanese investors
sold a net 1.145 trillion yen ($11.5 billion) worth of foreign
bonds, the biggest selling in a year.
But there have also been signs that retail cash has started
leaving Japan for the first time since October through "Toshin"
investment trusts. Outflows in March via Toshins were the
largest since August 2011, and targeted at markets as far afield
as Brazil and Mexico.
At the same time, the manager of Japan's biggest mutual
fund, Kokusai Asset Management, said this week it would keep its
portfolio weightings for Japan at a record low.
The massive repatriations so far this year are a testimony
to the effect Prime Minister Shinzo Abe's expansionary fiscal
and monetary policies, dubbed "Abenomics", have had on markets
since his election victory in December.
The amounts -- investors repatriated 8.02 trillion yen since
January versus an outflow of 3.21 trillion for the same period a
year ago -- are far bigger than what is traditionally seen as
money managers close their books on the Japanese financial year.
The yen has declined around 20 percent against the
dollar in the last four months in response to Abe's policy
moves, handing handsome profits to those invested abroad. The
Nikkei stock index is up 27 percent this year.
But the scramble by Japanese investors to cash in on equity
and currency gains at the year-end does not mean they are set to
keep their funds at home.
In the weeks preceding the Bank of Japan's April 4 meeting
at which new Governor Haruhiko Kuroda stunned markets with a
larger than expected quantitative easing programme, foreign
investors sold Japanese government bonds (JGBs). Japan's
ubiquitous margin traders, meanwhile, sold the yen, building
massive short positions on the currency.
"Institutional investors will increase their overseas bond
holdings," said Bill Diviney, a currency strategist at Barclays
in Tokyo. "They will have to.
"The BOJ is buying JGBs. They have to put their money
somewhere and as a natural consequence you will see a lot of
outflows going to overseas bond markets."
WILL IT LAST?
The March data has not proved to be of much use predicting
what Abe's new policy regime will do for risk appetite and
portfolio flows, simply because much of the repatriation was on
account of seasonal issues, mainly the need to book profits
before the year-end in March.
Of course, the Abenomics-driven rally in stocks and the
yen's decline gave an impetus to the repatriations.
Counter-intuitively, pension funds and other institutional
investors would have had to sell some of their equity portfolios
and adjust their foreign currency holdings as values rose, in
order to maintain mandated portfolio weightings.
"The weekly data is really choppy and the repatriation could
reflect seasonal factors," said Izumi Devalier, Japan economist
at HSBC. "I won't read it as people bringing money back seeing
more opportunities to invest domestically necessarily. It's too
early to tell."
Data from ANZ showed similar selling of Australian assets by
Japanese retail investors, with around A$12 billion of funds
repatriated from Australia in the four months to February as
they decided to book gains after a sharp rise in the Australian
dollar versus the yen. The Aussie is up nearly 15 pct this year.
And while it is early days, evidence is still scarce that
these investors are going to put their faith in Abenomics and
its ability to reflate Japan.
Bank lending data, for instance, did not reveal any
repatriated cash was being put to work in the economy, Devalier
"The BoJ is hoping that banks and corporates would take this
liquidity and invest it into the real economy as opposed to
investing it solely in overseas or in financial assets," she
"In terms of implications for the success of the new
monetary base targeting policy, it's worrying if we see capital
outflows accelerate more quickly than domestic lending."
It wasn't that the Bank of Japan disappointed markets --
quite the contrary.
In what some economists termed the "2-2-2-2 policy", it said
it would double Japan's monetary base and its own JGB holdings
and aim for a 2 percent inflation rate within two years.
But its proposal entails increasing its holdings of JGBs by
8 percentage points to 20 percent of the outstanding by 2014.
That's a dire situation for institutions and insurance firms
that hold long term bonds purely for their yield.
Life insurance companies and investment trusts are still
making their plans for the next 12 months but the initial signs
are that they will seek higher yields outside Japan.
"We have not changed our strategy after the BOJ measures,
but we are watching how these will spread to other countries,
especially to the U.S. economy," Masataka Horii, the Kokusai
fund's chief manager, told Reuters on Wednesday.
Analysts at Nomura noted evidence of retail investors
selling Aussie-denominated Toshin but buying high-yielding
Toshin in Brazilian real, Turkish Lira and Mexican peso.
Toshin companies had resumed buying foreign securities in
March for the first time in five months, seeking risk outside
Japan, they said. "We expect Toshin momentum to continue
recovering gradually," said Martin Whetton, a strategist at
Nomura in Sydney.
While most analysts are bullish on the Nikkei, with some
predicting the index, now at 13,549 will soon be at 15,000, the
rally thus far has been driven largely by foreigners.
Foreign investors bought 5.83 trillion yen worth of stocks
in 18 consecutive weeks from the week starting Nov. 4 to March
16, their longest such run since early 2006.
(Writing by Vidya Ranganathan; Additional reporting by Cecile
Lefort in Sydney, Masayuki Kitano in Singapore, Vincent Se Young
Lee in Seoul, Viparat Jantraprapaweth in Bangkok, Nishant Kumar
in Hong Kong, Chikafumi Hodo in Tokyo; Editing by Alex