Japanese likely to skip foreign bond buying spree
By Yoshiko Mori
TOKYO, April 10 (Reuters) - Japanese institutional investors will likely skip their usual spring shopping spree in foreign bonds this year and keep their money at home, content with the profit potential of domestic shares, fund managers said on Monday.
``Institutional investors are keen to increase their weighting in Japanese shares simply because they see more profit opportunities there than they do in foreign bonds,' said Masayuki Kichikawa, senior economist at Asahi Life Asset Management Co.
Positive structural changes taking place in Japan's economy have not been fully factored into most share prices, he added.
Analysts also say the wide interest-rate gap between Japan and the United States is not by itself enough to spur U.S. bond buying, given the risks posed by recent volatility in both U.S. debt prices and dollar-yen exchange rates.
Japanese investors unloaded a net total of 150.1 billion yen ($1.42 billion) in foreign bonds in March, the Ministry of Finance said on Monday, marking a fifth consecutive month of selling for a cumulative total of 1.13 trillion yen.
Japanese investors usually sell foreign bonds toward the end of the business year to book profits, and then go back and buy again once the new business year begins.
In April 1999, Japanese bought a net 2.78 trillion yen worth of foreign bonds, little changed from 2.70 trillion yen in net purchases in April 1998.
``But a big rebound (in foreign bond buying) is unthinkable this year, in light of general wariness about sending money abroad,' said the chief fund manager at a Japanese city bank.
JAPANESE WARY OF U.S. STOCK MARKET
Japanese sold a net 225.1 billion yen in foreign stocks in March, following 7.4 billion yen in net purchases in February.
The decline in part reflected a wariness about cross-border stock investments seen in other countries, as well.
Foreign investors sharply cut back their net purchases of Japanese stocks in March, buying a modest 14.1 billion yen compared with February's 859.6 billion yen.
``Renewed instability in global equity markets in March, particularly in the United States, more or less scared investors away from all cross-boarder transactions in equities, creating a holding pattern for Japanese equities as well,' Kichikawa said.
But analysts expect foreign investors to boost their buying of Japanese stocks in April, as they return to the market after fleeing to cash last month.
Japanese investors, however, are expected to keep unloading U.S. shares, since they expect the U.S. equity market as well as dollar-yen exchange rates to remain quite volatile, with the potential to depreciate.
CURRENCY UNCERTAINTIES BREED WARINESS
On the currency front, uncertainties were even worse for institutions hunting for better, stable returns, analysts said.
Last Monday, the Bank of Japan spent an estimated $12 billion or more in an attempt to shore up the sagging dollar when it dropped below 103 yen.
But currency traders pointed out that the United States, despite its official strong dollar policy, may be seeing more advantages in a weak dollar in the face of its explosive current account deficit.
``The U.S. current account deficit is likely to rise above $400 billion this year and that should be corrected either by higher interest rates or a weaker currency, or both,' a senior trader at a European bank said.
Unlike Japan's institutional investors, individuals may be more keen to buy foreign bonds in the 2000/01 business year as they grow impatient with Japan's ultra-low interest-rate policy, which looks set to last a while longer.
``Some of the money in maturing postal savings deposits will likely flow into foreign bonds and deposits as well as into domestic stocks,' said an analyst at Nomura Securities Co.
The government estimates that 106 trillion yen in high-yielding 10-year postal savings term deposits, opened at the height of an asset price bubble, will mature over the next two years, with 58 trillion yen falling due in 2000/01 alone.
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