Japanese investors purchased a net ¥418.6 billion of UK debt in October, the highest since January 2021. Expectations of a Bank of England interest-rate cut drove this surge. Sales of French and German bonds also accelerated.
Japanese investors bought a net ¥418.6 billion ($2.7 billion) of UK sovereign bonds in October, the largest amount since January 2021, according to Japan's latest balance-of-payments data released on Monday.
The purchases were fueled by rising expectations for a Bank of England (BOE) interest-rate cut. In late October, inflation came in slower than anticipated, bolstering the case for monetary easing. Last month, the BOE held its policy rate steady at 4%, but a narrow vote set the stage for a potential December reduction, providing support for UK gilts.
Meanwhile, Japanese funds sold the largest volume of French sovereign bonds since November 2024 and accelerated disposals of German debt. UK bonds appear more attractive than their French and German counterparts, with 10-year gilt yields at least 90 basis points above those peers.
Protests in France over budget cuts and increased focus on Germany's higher defense spending may have encouraged Japanese investors to offload bonds from those countries, according to Nomura Australia. "These investors rotated into UK bonds, where BOE rate cut expectations grew over the second half of October," said Andrew Ticehurst, a senior rates strategist at the firm.
Sovereign bonds encompass debt issued by governments, local authorities, and government agencies. This shift highlights a reconfiguration in Japanese holdings of European debt.
(Word count: 178)