TOKYO, March 18 (Reuters) - Japanese retail investors are still showing an appetite for overseas assets despite the dollar’s tumble to near 13-year lows — more weary of low returns at home than frightened of foreign exchange risk.
Driven away by razor-thin yields on domestic bank deposits, Japanese retail money has piled into overseas investment in recent years, such as foreign bonds, mutual funds that invest abroad and leveraged currency trading.
For at least some of these investors, the dollar's fall to a low around 95.75 yen JPY= on Monday was no doubt painful, but while it may have blunted a once voracious appetite, it has by no means extinguished it.
Japanese brokerages said that while there had been some withdrawals in investment trusts targetting Japanese equities, overseas securities, especially non-U.S. dollar securities, were faring well.
“Japanese retail investors are keen on investment trusts targeting foreign bonds as they believe that the dollar is near a bottom against the yen,” said Koichi Kitamura, general manager of Daiwa Securities’ investment trust department.
“Although they are somewhat reluctant to spend now, we expect to see an increased inflow of retail money to investment funds focusing on high-yielding foreign bonds,” he added.
One currency that remains popular among Japanese investors is the Australian dollar, which has fallen by a relatively mild 7 percent against the yen this year compared with the dollar’s 12 percent fall.
The Australian dollar’s allure stems from the country’s high interest rates, recently raised to 7.25 percent this month, while the Bank of Japan has held rates steady at 0.50 percent. The Australian dollar was trading near 90 yen AUDJPY=R on Tuesday.
“There has been no panic. Investors are still calmly allocating toward foreign bond funds and newly issued foreign bonds,” said a spokesman for Nomura Securities, who declined to be identified.
Earlier this month, Nomura Securities sold A$590 million in Australian dollar-denominated “uridashi” bonds issued by Toyota Motor Credit Corp, a unit of Japan’s Toyota Motor Corp (7203.T). The two-year bonds came with a coupon rate of 6.82 percent.
Nomura also sold A$650 million in two-year Australian dollar-denominated uridashis issued by International Finance Corp [IFC.UL], the private-sector lending arm of the World Bank, with a coupon rate of 6.71 percent.
Uridashis are foreign currency bonds sold to Japanese investors. Data shows Japanese retail money flocked to overseas assets even as the dollar slipped off a 4-½ year high above 124 yen hit late last June and dropped to below 105 yen in February.
From July to February this year, retail investors withdrew a net 265.4 billion yen ($2.7 billion) from investment trusts that focus on Japanese assets, according to Nomura Research Institute. By contrast, investment trusts targetting overseas assets saw a net fund inflow of 3.7 trillion yen.
Even last Friday, when the dollar fell below 100 yen for the second day in a row, mutual funds that invest abroad attracted 1.9 billion yen in net inflow.
While there were outflows from funds that invest in a mix of overseas assets and those specialising in equities, investment trusts that target foreign bonds saw a net inflow of 13.2 billion yen on Friday, according to the Nomura Research Institute data.
The dollar was trading around 97.50 yen JPY= on Tuesday. (Writing by Masayuki Kitano; Editing by Edwina Gibbs)