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To: Alex who wrote (22430)	10/30/1998 9:44:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116753

Japan investors switch to European bonds Re-weighting from US$ going at a fast pace: research head HE Japanese are finally boarding Europe's single currency train. Having virtually ignored European economic and monetary union in recent years, Japanese investors have switched in the last three months to European government bonds from US Treasury bonds. Japan's Ministry of Finance says that, as a proportion of all Japanese foreign bond purchases, US Treasury bonds have fallen from 82 per cent in August 1997 (on a six-month moving average) to just 45 per cent in August 1998. On the latest single monthly data available, the proportion fell to below 30 per cent, with European government bond markets the main beneficiaries. "What we are seeing is a clear long-term reweighting of Japanese portfolio investments from the dollar into the euro-zone," said Avinash Persaud, head of currency research at JP Morgan. "This is happening at quite a fast pace." Many Japanese, including senior government officials, believe prices in the US Treasury bond market and stock market are dangerously close to bubble levels. The advent of EMU is an opportunity to diversify their risks into an increasingly liquid alternative. Although more than 90 per cent of the Bank of Japan's (BOJ) foreign exchange reserves are dollar-denominated (mostly in US Treasury bonds), analysts say it will not take long for the BOJ to follow Japanese insurance companies into the euro-zone. "Neither the D-mark nor the French franc bond markets are liquid enough on their own to allow the Japanese investor to diversify against the dollar," said Joanne Collins, senior economist at Daiwa. "The creation of the euro suddenly changes the picture." Daiwa Europe, the investment bank, says that in the first half of 1998, Japanese overseas portfolio investment increased by US$75 billion (S$121.3 billion). The growth has been spurred by the "Big Bang" deregulation of the Japanese financial sector, which started in April. These reforms are releasing a large amount of funds for the purchase of overseas securities. Three key areas are affected: foreign exchange regulations have been loosened, allowing insurance and pension funds to invest more of their assets abroad; restrictions on the investment decision of public pension funds have been relaxed; and the Zaito system, which directs state investments into low-cost domestic assets, is set to be dismantled, which will release an estimated US$2.2 trillion. Much of it will go abroad. -- FT business-times.asia1.com.sg