Japanese banks’ overseas investments hit new high despite market turbulence

TOKYO, June 18 (Reuters) – Japanese commercial banks’ overseas investments hit a record high in the three months to March as they loaded up on foreign debt to beat ultra-low returns at home and market turmoil caused by the coronavirus pandemic, data showed on Thursday.

The balance of overseas credit by Japanese banks rose to 4.7 trillion yen ($44 billion) as of end-March, rising for three straight quarters and to the highest since comparable figures became available in 2004, the Bank of Japan (BOJ) said.

Lending and investment to the United States made up nearly half of the total amount and rose 269 billion yen from the previous quarter, according to the data compiled as part of a global survey by the Bank for International Settlements (BIS) and released by the BOJ.

Japanese banks piled into foreign bonds, mortgage-backed securities and overseas investment trust funds to beat global interest rate declines in the first quarter, said Takuto Ninomiya, associate director-general of the BOJ’s financial markets department.

“It’s not clear how much the pandemic affected flows. But markets did move quite a lot, which led to an increase in overseas investment by Japanese banks,” he told a media briefing.

Japanese banks have been boosting overseas loans and investments to offset dwindling margins at home due to years of ultra-low interest rates and a lack of demand for funds.

A recent survey showed Japanese financial institutions held nearly 20% of the world’s collateralised loan obligations (CLO), potentially exposing them to big losses if the pandemic erodes the creditworthiness of debt.

$1 = 106.7400 yen
Editing by Jacqueline Wong