Japanese government bonds (JGBs), long shunned by many investors due to their meager yields, have attracted increasing buying interest from Europe, thanks to European Central Bank President Mario Draghi’s easing strategy.
The ECB started its 1 trillion euro ($1.05 trillion) bond buying scheme last week, sparking a plunge in European government debt yields that has rendered even JGB yields attractive by comparison. Fund inflows out of Europe have helped the euro trade close to two-year lows against the yen, which weakened as far as 126.86 on Friday.
“The whole European situation has definitely driven flows into other markets. The spillover effect is real. The euro is an unintentional funding currency,” said Bart Wakabayashi, head of forex at State Street Bank in Tokyo.
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