More on the subject of Japanese overseas investment.
As we said here and here, Japanese cash outflows to world markets have so far been limited to a trickle, almost all from retail mom-and-pop investors who like higher yields and are estimated to have 1500 trillion yen ($15.40 trillion) in savings. As for Japan’s huge institutional investors — the $730 billion mutual fund industry and $3.4 trillion life insurance sectors — they are sitting tight.
If some are to be believed, the hype over outflows is misguided. Morgan Stanley for one reckons Japanese insurers’ foreign bond buying may rise by just 2-3 percent in the next two years, amounting to $60-100 billion. Pension funds are even less likely to re-balance their portfolios given large cash flow needs, the bank said.
But a Reuters survey last week revealed several insurance companies are indeed considering boosting unhedged foreign bond holdings. Insurers currently hold almost half their assets in Japanese government bonds and risk being crowded out of the JGB market as the central bank ramps up purchases. A recent survey by Barclays also showed Japanese investors keen on overseas debt.
Barclays analyst Bill Diviney offers the following explanation as to why institutional investors haven’t ventured out so far:
From the life insurer investment plans released last week the basic takeaway was that in terms of current levels in currency and given the rally in emerging and developed bonds of late they seem to be uncomfortable with the current price levels and the sense I get is that they are waiting fro a dip in the market. So the markets have risen in anticipation of Japanese flows but the investors themselves want to wait until there is more value and better buying levels.