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To: LLCF who wrote (150968)	2/13/2002 8:53:57 AM
From: Les H	Read Replies (1) \| Respond to of 436258

Japanese sold massive amounts of U.S. bonds in Jan Wednesday February 13, 12:17 AM EST (Adds details, analyst comments) By Yoshiko Mori TOKYO, Feb 13 (Reuters) - Japanese investors dumped massive amounts of foreign bonds, mostly U.S. Treasuries, in January on worries over rising U.S. interest rates and strong fund demand for the fiscal year-end, data showed. Finance Ministry figures released on Wednesday showed Japanese investors sold 3.0712 trillion yen ($23.16 billion) in medium- and long-term foreign bonds in January. It was the largest monthly amount since the ministry began collecting data in its current format in 1998. The ministry data also showed that foreign investors sold a net 1.2368 trillion yen worth of Japanese bonds in January, following net sales of 172.2 billion yen in December. "The market's perception that Japan has a weak-yen policy took its toll and induced a foreign sell-off in Japanese bonds," said Masayuki Kichikawa, senior economist at Asahi Life Asset Management. Japanese banks played a leading role in the recent capital flows drama. "The large amount of sales reflected attempts by banks to reduce their positions in U.S. bonds," a senior ministry official told Reuters. Japanese investors have been offloading foreign bonds as they believe they are riskier than domestic assets. Investors such as life insurers also appear to have repatriated money by liquidating U.S. bonds before they close their books for the March fiscal year-end, the official said. In the October-November period, Japanese institutional investors bought a total 6.3467 trillion yen ($47.85 billion) in foreign bonds. But they then liquidated a total 3.8983 trillion yen in foreign bonds in the December-January period. Many traders are speculating whether the selling spree will continue. Tadao Sakashima, deputy general manager at Daiwa Securities SMBC's fixed income department, said he expected them to keep pulling out of the U.S. market to avoid the risk of rising U.S. interest rates. "It would be too risky for them to increase U.S. bond exposure when many U.S. market players see a Fed funds rate increase by as much as 150 basis points by March next year," Sakashima said. On Tuesday, U.S. March Treasury bond futures were sold down to their lowest level in seven sessions due to concerns that Wednesday's retail sales data could show more strength in the U.S. economy than previously expected. U.S. RECOVERY STORY BUILDS Many economists are growing more confident that the United States is on a path to economic recovery. More than 95 percent of economists polled in February by Blue Chip Economic Indicators, a newsletter, said they expected the U.S. recession to be over by the end of March. "There is no way that banks will increase their positions in risk assets (such as foreign bonds and stocks) in Japan's current financial climate," Sakashima said. Slides in stock prices shrink the value of banks' massive shareholdings, cutting deep into the capital they need to write off a mountain of bad loans. The surge in investors' repatriation has been cited as a factor for a slip in the dollar from recent three-and-a-half-year highs against the yen. But repatriation by Japanese banks should have a limited impact on currency rates because they use the Treasury repo market to finance their U.S. bond purchases, rather than converting the yen on the foreign exchange market, traders say. In the Treasury repo market, banks borrow dollars by using U.S. bonds as collateral. Unlike banks, life insurers usually convert the yen to buy U.S. bonds, so automatically induce dollar-selling for yen when they repatriate their money. In January, life insurers sold a net 487.2 billion yen worth of foreign bonds, after selling 28.4 billion yen in December. The Finance Ministry official said it was uncertain when life insurers would stop selling foreign bonds. The dollar stood at around 132.60 yen at midday on Wednesday, unchanged from New York on Tuesday, but off a recent 39-month high hit on January 31 of 135.20 yen. money.iwon.com URL changed Bloomberg article on same quote.bloomberg.com Japan capital flows money.iwon.com money.iwon.com