Japanese investors who lived through a decade of deflation and recessions say US Treasuries are a bargain even with yields at about the lowest levels since at least the 1960s.
Japan bought a net $105 billion of US government debt through August, exceeding China as the biggest foreign buyer and boosting its holdings to $731 billion, or more than 10 per cent of the total market, Treasury Department data show. The 17 per cent increase is the most since a 25 per cent surge in 2004. Mizuho Asset Management Co and Mitsubishi UFJ Asset Management Co are among the investors buying US bonds because they see similarities between America’s response to the recession and their government’s efforts during the so-called lost decade of the 1990s. An index of Japanese debt securities compiled by Bank of America Corp’s Merrill Lynch unit returned 90 per cent in the 1990s, while the Nikkei 225 Stock Average fell as much as 67 per cent between January 1990 and October 1998.
“The US economy has faced a double whammy: the recession and credit contraction,” said Akira Takei, head of non-yen denominated bonds at Mizuho Asset in Tokyo, a unit of Japan’s second-largest bank. “The US will face a triple whammy with deflation. That’s good for the Treasury market.”
Inflation-Protected Debt
Michael Pond, an interest-rate strategist at Barclays Plc, one of 18 primary dealers that trade with the Federal Reserve, favours Treasury Inflation Protection Securities, or TIPS, and said Asian investors, including the Japanese, have been buying the bonds on concern the dollar will continue to decline and inflation will accelerate. Barclays expects consumer prices to rise 1.9 per cent in 2010, after a decline of 0.4 per cent this year, data compiled by Bloomberg show. “Japanese investors have been skewed to expecting deflation because of their own experience, but the more pressing concern over the intermediate term is inflation,” said Pond, who works in New York for Barclays.