'Japan Kuroda Shock' Could Move 3,870 Trillion Won in Overseas Investment

Japan, the Largest Creditor Nation, Overseas Stock and Bond Investments Reach $3 Trillion
BOJ Raises Interest Rate Cap, Leading to Increased Government Bond Yields in the US and Other Major Countries

[Asia Economy Reporter Kwon Haeyoung] Japan, which was the last bastion of quantitative easing policy, has hinted at an interest rate hike through a surprise announcement, raising concerns that Japanese capital invested in overseas stock and bond markets, including the United States, may withdraw. Bloomberg described this as the "Kuroda (Bank of Japan) shock has begun."

According to Bloomberg on the 20th (local time), funds invested by Japanese investors such as banks and pension funds in overseas stocks and bonds are estimated to exceed $3 trillion (approximately 3,870 trillion KRW). Japan's holdings of U.S. stocks and bonds alone currently exceed $1.5 trillion (about 1,940 trillion KRW). This is estimated to be 7.3% of the U.S. Gross Domestic Product (GDP). Japanese capital has also flowed heavily into other countries. The amount Japan has invested in Dutch stocks and bonds reaches 9.5% of that country's GDP, and Japanese investors have also heavily entered Australia (8.3% of GDP), France (7.5%), the United Kingdom (4.6%), Belgium (4.5%), and Canada (4.1%).

[Image source=Yonhap News]

As such, Japan, a major player in the global financial market, raised tensions in the global financial market by virtually signaling an interest rate hike the day before. The day before, the Bank of Japan (BOJ) decided to widen the fluctuation range of long-term government bond yields from ±0.25% to ±0.50%. For the past decade, under the name of "Abenomics," Japan maintained ultra-low interest rates to stimulate the economy, but amid the interest rate hikes by major countries, it could no longer withstand the depreciation of the yen and rising inflation, leading to a revision of its monetary easing policy. Accordingly, Japanese investors such as banks and pension funds are likely to liquidate carry trade funds that borrow cheap yen to invest in overseas assets and repatriate funds back to their home country.

Amir Anbarzadeh, strategist at Asymmetric Advisors, said, "With Japan allowing interest rate hikes, we may see a tsunami of repatriation of Japanese funds overseas," calling it a "massive shift in movement." Countries with significant inflows of Japanese investor funds may become vulnerable to the BOJ's revision of its monetary easing stance. There is also a considerable possibility of a chain reaction impact on asset markets, including emerging countries.

Following the BOJ's measures that day, the financial market was shaken so much that the term "Kuroda shock" emerged. The U.S. 10-year Treasury yield rose to 3.7%, marking the largest increase in three weeks. The UK 10-year government bond (gilt) yield rose by 0.1 percentage points to 3.6%, and the German 10-year government bond (bund) also rose to 2.27%. The Wall Street Journal reported, "U.S. investors are concerned that the BOJ's move may trigger Japanese institutional investors to sell U.S. Treasuries."

This content was produced with the assistance of AI translation services.