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Japanese investments abroad rise with weaker Yen

Japanese investment trusts have started to look abroad for better returns on their investments compared to what the domestic market offers, writes Sean Yokota, chief strategist at SEB in Asia, in a report.

Expectations on an expansionary policy aimed at boosting inflation had started to rise already before Shinzo Abe won the Japanese elections on 16 December. A weaker currency at home means interest in foreign investments has started to increase.

“We saw an outflow of funds from Japan already at the end of last year, especially towards government bonds issued by some European countries,” Sean Yokota says.

He says investors have shifted some of their funds towards equity markets recently, but certain emerging market bonds, such as Brazil’s, have also benefitted.

The trend with more foreign equities in the portfolios and investments in bonds issued by emerging market economies will continue, Yokota says. In addition, other players in Japan – such as life insurance companies – may join the investment trusts in increasing their exposure to foreign markets.

“The strong Japanese equity market performance may delay the trend of funds moving abroad, but some will still trickle away and accelerate again later,” Yokota says.