Foreign central banks may be quietly buying Japanese government bonds? Analysts are exclaiming: the trillions flowing into Japan may be part of the "de-dollarization" trend!
Data released this week by the Ministry of Finance of Japan shows that in April, following the chaos caused by President Trump's "Day of Liberation" tariffs, foreign investors flooded into Japanese Stocks and Bonds, making Japan a global haven for "de-dollarization" trades.
Last month, as the market experienced severe fluctuations and the USD stumbled, overseas investors net bought 8.2 trillion yen (equivalent to 57 billion USD) of Japanese securities, the largest monthly influx of foreign investors into Japanese Assets since comparable records began in 2005, and more than three times the average level for April over the past 20 years.
The unprecedented buying spree by foreign investors included net purchases of 25.5 billion USD in Japanese Stocks (the largest amount since April 2023) and net purchases of 31.5 billion USD in Japanese long-term Bonds (the largest scale since July 2022).
Traders indicated that the total purchases might have been boosted by global central banks buying Japanese government Bonds. Yujiro Goto, chief Forex strategist at Nomura Securities, noted that the scale of purchasing Japanese long-term Bonds "significantly exceeded" seasonal patterns and was remarkable because it coincided with the surge in Stock purchases. He mentioned that overseas investors might be shifting USD funds into Japan as part of the "de-dollarization" trend and view Japan as a reasonable choice due to its large and relatively stable market.
Mansoor Mohi-uddin, chief economist at DBS Bank, stated that the huge "Buy Japan" wave in April occurred against the backdrop of global investors' concerns over shifts in US policies, trade wars, and Trump criticizing Federal Reserve Chairman Powell. "Japan may have indeed been influenced by the de-dollarization trend in April, this idea might hold some truth," Mohi-uddin expressed. "We may be witnessing some foreign central banks entering the Japanese Bond market. When they diversify investments, they look for liquid markets, and Japan performs remarkably in that aspect for reserve management agencies."
This week, an important trade consensus was reached between China and the USA, stabilizing the market; however, it remains unclear whether the influx into Japanese Assets will continue.
In the latest monthly survey of institutional investors released by Bank of America on May 9, it pointed out that fund managers "almost unanimously" believe that Trump's economic policies will lead the USA into stagflation. This survey was conducted after Trump announced "reciprocal" tariffs, and additionally, the survey indicated that shorting the USD has become the most popular trade among fund managers.
Analysts at Bank of America wrote that despite Trump's policies creating uncertainty and leading many to question the dollar's status as a "safe haven," its position "remains intact in absolute terms and relative to all feasible alternative currencies."
