Foreign funds sold a record amount of Japanese bonds

Foreign investors dumped a record amount of Japanese bonds last month amid the global debt collapse as major central banks rushed to raise rates to fight inflation.

Foreign funds got rid of 6.39 trillion yen ($43.9 billion) worth of Japanese bonds in September, according to preliminary Treasury Department data. As the global bond sell-off at the time pushed yields sharply higher, the 10-year JGB yield rose to the upper end of the Bank of Japan's curve adjustment range, spurring additional purchases by the central bank.

"Japan's overseas bond sales were partly driven by the global debt sell-off, which caused investors to lose ground on bonds, including Japanese bonds," said Tsuyoshi Ueno, senior economist at the NLI Research Institute in Tokyo. "Further falls in the yen and the Bank of Japan's policy meeting in September have also generated some speculation that the Bank of Japan will have to adjust policy as the progressive weakening of the yen will increase upward pressure on Japanese prices."

Yen selling also gained momentum in September, with the currency hitting a 24-year low against the dollar as the Bank of Japan reaffirmed its ultra-soft monetary policy, prompting Japanese authorities to intervene in the currency market.

Meanwhile, balance of payments data showed that Japanese investors returned to U.S. Treasuries in August for the first time in 10 months. Japanese funds were net buyers of 565 billion yen worth of U.S. sovereign bonds after selling 15.7 trillion yen worth of securities over the past nine months.

"Japanese funds bought aggressively in the first two weeks of August when U.S. yields were moving relatively steadily and then rose sharply in late August," Ueno said. "Japanese investors were probably relieved to see a period of stable returns to buy after months of selling."