Wednesday, October 02, 2013

Japanese Investors Quietly Flee To Safety

From Reuters.
TOKYO, Aug 8 (Reuters) - Japanese investors piled into foreign bonds in July, making their biggest net purchase in three years - providing early evidence that Prime Minister Shinzo Abe's expansionary policies are having the desired effect.

Japanese investors bought 3.482 trillion yen ($36 billion) of foreign bonds in July, the largest amount since August 2010, data from the Ministry of Finance showed.

It also marked the first net monthly purchase since January, as investors sought higher returns overseas after the Bank of Japan launched its massive bond-buying stimulus campaign.
Emphasis mine.

Whatever statist fantasy world the author lives in, this most definitely does not show that Abe's expansionary policies are having the desired effect unless the desired effect happens to be driving all investors out of Japan in a mad rush for the exits. What it shows is that savvy investors are fleeing the Yen, getting into anything they can get their hands on, even manipulated, depressed instruments like foreign government bonds.

Only a desperate person would deliberately buy US Treasuries right now when the Fed is holding rates low by printing money and monetizing government debt. The Japanese investors are fleeing because they know the jig is almost up for Japan and the Yen is going to depreciate. They also know that Japanese Government Bonds at 0.22% are a lousy investment when the Bank of Japan (BOJ) is committed to printing money until inflation hits 2%.

No word on how the BOJ is going to stop the inflation freight train once it hits 2%, crashes through the barricades and hurtles on to much, much higher numbers. In the meantime, anyone who can do basic math and isn't blinded by patriotism or rose-colored glasses is getting out of the country.

I have no doubt the the combined force of all of the BOJ board members could stop this with their bare hands. No, really. They'll hit 2% inflation and it will just glide to a halt.


B-Daddy said...

Brilliant and spot on. It reminds me to ask my financial advisor to get me out of anything tied to Japan.

K T Cat said...

B-Daddy, thanks for the kind words. I think the best way to play this is to stay domestic. I'm going to blog about this later, but as time goes on, more and more money is going to look for the safe haven which, despite Obama's best efforts, would seem to be America.

K T Cat said...

By the way, I would bet this isn't active selling of JGBs, but simple failure to renew them when they roll over. I'd like to do a little more research on this. Once the active selling starts, look out below!