Foreign investors’ sell-off of Japanese short- and medium-term government bonds in July hit a nearly 20-year high, mainly driven by rising interest rate hike expectations

(1) According to data from the Japan Securities Dealers Association, in July, foreign investors were net sellers of short- and medium-term Japanese government bonds totaling 1.28 trillion yen, marking the highest level since July 2006. At the same time, long-term government bonds with maturities of 10 years or more still saw net purchases of 889.8 billion yen. (2) In late July, the yen-to-dollar exchange rate fell to its lowest level since 1986, triggering a historic joint intervention by Japan and the United States; on July 31, the Bank of Japan kept interest rates unchanged, but Governor Kazuo Ueda hinted at a possible rate hike in September, significantly heightening market expectations of an accelerated rate hike cycle. (3) Mitsubishi UFJ strategist Keisuke Tsuruta pointed out that in July, market expectations for the Bank of Japan to accelerate interest rate hikes continued to rise, and combined with the persistent weakness of the yen, these were the main factors driving large-scale foreign selling of short- and medium-term government bonds.