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Yen finds support from surging demand for JGBs, data shows

Foreign investors piled into Japanese bonds in the past week, flow data from the Ministry of Finance showed on Thursday, potentially helping support the yen.

The move into the Japanese currency was spurred by renewed concern over prospects for US growth, which may keep US interest rates lower for longer, dampening demand for the dollar, analysts said.

“Sovereign wealth funds, and in particular, China, have been keen buyers of the yen in an attempt to diversify out of dollars,” said Michael Derks, chief strategist at FXPro. “Given the tragic earthquake and tsunami in March the Japanese economy needs a weaker yen, so buying of JGBs is not particularly helpful.”

Foreign investors bought a net 906.8 billion yen ($11 billion) of Japanese bonds in the week to May 21, helping drive 10-year JGB yields to near five-month lows.

In the week ending April 30, foreigners bought a net 1.38 trillion yen in Japanese bonds, the biggest weekly net purchase in data going back to 2005.

“The last time bond inflows rose to close to current levels ...was associated with significant strengthening by the yen,” said Todd Elmer, a strategist at Citi, in a note. “That suggests the recent trend may have acted as a significant force in capping rises in the dollar, and an extension could further impede yen depreciation.”

The yen was at 81.31 against the dollar in recent trade, the highest level since May 16.

Yen appreciation vs the dollar

Source: Bloomberg data
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