Yen at 160 and 10-Year JGBs Approaching 1.1%

Apollo Chief Economist

With the Japanese yen rising above 160 and 10-year JGB yields approaching 1.1%, we’ve updated our chart book looking at Japanese demand for US Treasuries.

There are five conclusions:

1) Japan is the biggest foreign holder of US Treasuries, holding $1.2 trillion. This is more than China’s $770 billion, see the first chart.

2) The three-month moving average of Japanese net purchases of US Treasuries is declining, suggesting that Japanese investors are repatriating money from abroad and taking money home to buy Japanese assets, see the second chart.

3) A simple econometric model forecasting the USD/JPY exchange rate shows that based on the current interest differential between the US and Japan, the USD/JPY exchange rate should currently be 140, see the third chart below. In other words, with Japanese yields rising relative to US yields, the yen should be appreciating, which is the opposite of what has happened.

4) Concentration is also a major challenge for the Japanese stock market, with the 30 biggest stocks in the TOPIX now making up 40% of the index, see the fourth chart.

5) The latest data shows that tourism into Japan is at record-high levels, likely driven by the cheap yen, see the fifth chart.

Japan owns $1.2 trillion in US Treasuries. China owns $770 billion.
Source: Bloomberg, Apollo Chief Economist
Japanese investors moving toward selling US Treasuries
Source: Ministry of Finance Japan, Bloomberg, Apollo Chief Economist
USD/JPY has depreciated 20 points more than predicted by US/JP interest rate differentials
Source: Bloomberg, Apollo Chief Economist
Concentration is also a big issue in the Japanese stock market
Source: Bloomberg, Apollo Chief Economist
Tourism: International visitors coming back to Japan, partly driven by the weak yen
Source: Japan National Tourism Organization, Bloomberg, Apollo Chief Economist

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