Against a backdrop of low real interest rates in Japan and rising rates in the US, the depreciation of the Japanese yen looks set to continue through 2014. Yet, there could be big consequences on the global financial markets should Japan’s domestic investors begin to sell their holdings of government bonds in bulk.
Writing in Shares magazine, Kohei Iwahara (economist at Natixis), explains why domestic investors – who have traditionally held a strong “home-bias” – may instead increase their exposure to foreign security investments. Indeed, Japanese investors have recently expanded their holdings of French and German bonds. Meanwhile, they have also shown appetite towards peripheral eurozone bonds – a development worth keeping an eye on.
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