1: Our own custodial data show international investors as small net buyers of JPY since late March, building on a trend that first began to emerge at the end of January of this year. This contrasts strongly with the picture that emerged between late November 2012 and late January of this year. During this period we saw sharp outflows emerge from the JPY. Given that we saw little in the way of outflows of foreign capital from either Japanese equities of fixed income during that period (indeed, we saw an acceleration of inflows), it seems reasonable to assume that these flows represented the currency hedging of previously unhedged JPY denominated assets. With no matching flows emerging over the past three months, we must therefore assume that this process has largely run its course.
2: When Japanese investors began to push money overseas in earnest around eleven years ago, the improved yield they could achieve was substantial. 2-year New Zealand government bonds at the time yielded over 6 percentage point more than their Japanese equivalent while Australian 2-year government paper provided a 5.4 percentage point pick up in performance. This is no longer the case with many of the key the yield gaps at close to their lowest levels in decades. In an environment where a single day of adverse currency moves can cancel out this advantage, the attractiveness of investing in overseas bond markets must be declining.
3: While Japanese investors certainly benefitted from the recent run up in crosses such as AUD/JPY and NZD/JPY they will also be aware that they significantly underperformed the Nikkei 225 over the same period (up over 50%). Moreover, they will be aware that these crosses now stand not far off multi-decade highs (despite declining yield support) while the Nikkei stands at just over 1/3rd of the level it reached at the end of 1989. If they believe that the government is finally committed to doing what it takes to revive the economy then it also seems reasonable to suppose they will want to take part in the continued recovery via the stock market rather than scrabbling around in foreign bond markets in search of modest yields.