Foreigners Bailing on BOJ Bets Narrow Spread on Yen Swap Rates

(Bloomberg) -- The spread between the yen’s foreign and domestic swap rates is shrinking as Bank of Japan Governor Haruhiko Kuroda’s repeated commitment to the ultra-loose policy prompts overseas investors to turn back to the nation’s government bonds.

The spread between 20-year yen swap rates quoted on Japan Securities Clearing Corp. and London’s LCH Clearnet is down to 7.25 basis points, the narrowest since December. It swelled to a record 15.5 on Jan. 10, a day after the BOJ’s move to trim purchases of some bonds spurred speculation it was looking to taper stimulus.

“Upward pressure on bond yields will be limited as foreign investors are expected to cover their positions,” said Naoya Oshikubo, a rates strategist at Barclays Securities Japan Ltd. Overseas investors’ focus isn’t expected to shift back to the BOJ’s monetary policy normalization after Kuroda clearly reaffirmed his stance, he said.

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