May 18, 2017 / 8:32 AM / 3 months ago

Japan investors buy most foreign bonds since July 2016 in latest week

TOKYO, May 18 (Reuters) - Japanese investors' appetite for foreign bonds picked up in the latest week as they bought the most in 10 months, reassured by the outcome of France's presidential election.

Ministry of Finance data released early on Thursday showed that Japanese investors bought a net 1.821 trillion yen ($16.40 billion) of foreign bonds in the week through May 13, accelerating from their net purchases of 425.8 billion yen the week before.

That marked the largest amount of foreign buying since the first week of July last year, and the third-highest total since MOF began compiling the data in 2005.

"Japanese investors had sold a huge amount of foreign currency-denominated assets toward the bookclosing in March, so this is a signal that they're coming back," said Naomi Muguruma, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

"This is probably a reaction to the French presidential election outcome. Japanese investors who had been on the sidelines waiting for the result resumed foreign bond investment," she said.

At the end of 2016, Japanese investors held 27 trillion yen of French government bonds, or about 12 percent of the market.

They dumped a record 4.256 trillion yen of foreign bonds in April, the first month of the Japanese fiscal year, partly driven by anxiety that far-right candidate Marine Le Pen would win the presidential election and trigger a plunge in French debt prices.

On May 7, Emmanuel Macron defeated Le Pen in the second round of the election to become France's president. Support for Macron's centrist party is growing before legislative elections next month, a poll found on Thursday, raising the chances that he will be able to win parliamentary backing for his reform plans.

From November to April, Japanese investors sold 8.7 trillion yen of foreign bonds. They had been net foreign bond buyers for the preceding 17 straight months, to the tune of more than 34 trillion yen.

Japanese investors went on a massive foreign bond binge last year, snapping up U.S. and European debt as the Bank of Japan's monetary policy pushed the yields on many Japanese government bonds (JGBs) into negative territory.

JGB yields stabilised after the BOJ unveiled its current yield curve control policy in September. Then in November, Donald Trump's victory in the U.S. presidential election raised market expectations of reflationary stimulus steps, which pressured global bond prices.

"Japanese were sellers of foreign bonds for a while, but the French election result seems to have reassured some investors," said Takami Tokioka, chief portfolio manager at GCI Asset management in Tokyo.

There are some indications that the selling continued this week. France's seven billion euro sale of 30-year bonds on Tuesday included orders from Japanese investors, a French debt agency official said.

"Japanese investors traditionally don't buy in big sizes in syndications, but we have seen a few Japanese orders in the book for this deal. The size was in line with previous transactions," said Anthony Requin, chief executive of Agence France Tresor.

$1 = 111.0300 yen Reporting by Tokyo markets team; Editing by Jacqueline Wong

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