It wasn’t just the Nikkei. Euro zone government bonds rallied following Japan’s announcement of a massive new monetary stimulus. That sent yields on the debt of several euro zone countries to record lows on bets that Japanese investors might be switching out of Japanese government bonds into euro zone paper, or might soon do so.
The Bank of Japan on Thursday announced extraordinary stimulus steps to revive the world’s third-largest economy, vowing to inject about $1.4 trillion into the financial system in less than two years in a dose of shock therapy to end two decades of deflation.
Austrian, Dutch, French and Belgian borrowing costs over ten years fell to record lows as investors piled into euro zone debt offering a pick-up over Germany. The bond rally was led by 10- and 30-year maturities after the BOJ said it would double its holdings of long-term government bonds.
According to one trader:
There is no question that Asian demand for semi-core is quite strong and I think, in light of yesterday’s BOJ move, the expectation is that that’s going to continue.
Philip Tyson, strategist at ICAP, told Reuters Insider there had been talk of life insurance companies switching out of Japanese bonds overnight in search of yield, potentially into European debt.