Japanese investors’ wait-and-see approach this year is leading to a growing problem. Cash.
Having sold a record amount of overseas bonds in April, as well as domestic debt, investors have mostly held off reinvesting the proceeds. Excess reserves at the Bank of Japan from the country’s financial institutions, subject to a 0.1 percent charge, reached the highest in 13 months in April. A redemption of government bonds in June is likely to add to this cash pile, as quarter-ending months typically see four-to-five times more money returned.
Yet despite the abundance of cash at hand, there is no sense of urgency among Japan’s investors to put the money to work. A lack of decisive direction in both currency and bond markets, and lingering concerns of geopolitical risks and U.S. political turmoil have led to a wait-and-hold stance.
“It’s true cash at hand is abundant,” said Eiji Dohke, chief bond strategist at SBI Securities in Tokyo. “Investors have been selling yen bonds and foreign bonds and have shed risk exposures considerably to leave quite a capacity for investment. But they have become very cautious, after experiencing a surge in yields since last fall accompanying the Trump rally.”
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