Data from the Ministry of Finance show that Japanese investors have been selling foreign assets, bonds in particular, over the last three weeks
It's not something that is happening just recently either. It's something that has been going on for quite a while, as highlighted here last month.
Japanese investors and the government holds about $1.1 trillion worth of US Treasuries, but that figure could be dwindling further at the next count based on latest data. The former has been reportedly shifting towards selling US Treasury bonds and other dollar-denominated based debt on fears that the Trump administration budget and other policies are pointing towards a weaker dollar.
Masahiro Kawagishi, chief investment officer of fixed income at Nomura Asset Management, says that he and his team has been shifting funds from dollar-denominated assets to debt securities in India, Malaysia and other emerging economies.
He cites that "a portfolio that's concentrated on the dollar isn't sound" considering that "the advent of the Trump administration is certainly causing concerns that the dollar may no longer be the same key currency as before".
Although the data from the Ministry of Finance doesn't breakdown the assets by country, it's a safe bet to assume the bulk of the net $19.6 billion international debt securities sold will have been dollar-denominated. And the movement in USD/JPY as well as Treasuries in the past three weeks strongly suggests that as well.
The report goes further into speaking with other investors and most of them are concerned about the US budget and trade deficit surrounding the US economy - which is why they are choosing to stay away.
The dollar and Treasury bulls' only reprieve is that there isn't a like-for-like alternative in the market, and that the diversification away from dollar-denominated asset holdings can only go so far. But yeah, the pain trade could just be at its beginning if the Trump administration is to make a case for a weaker dollar to address the issue of the twin deficits.
