WHEADON Data from the Japanese Ministry of Finance show net outflows from Australian dollars over the past 12 months. Data from our own turnover survey tell a different story: they show net inflows of ACGBs [Australian Commonwealth government bonds] to Japan. This may suggest some net selling of semis.

Japanese investors have been a major player in our market for decades. Some may be managing Australian dollar liabilities, others may be attracted by the returns on offer or are using us for diversification.

We also continue to be one of the less expensive, or perhaps ‘least worst’, options when it comes to hedging back into yen. All this is generally supportive and, while there will always be ups and downs, I am not worried about Japanese demand in the long term.

FAJARDO We haven’t experienced wholesale selling of our paper from Japan. There has been a bit of a scarcity value to QTC [Queensland Treasury Corporation] because we have had smaller programmes. This said, we were in Japan recently and it is true that the investor base there is reasonably quiet.

Combining Australian rates and the semi-government spread to sovereign, we are still attractive.
Some Japanese investors want to hedge as the expectation of rate cuts in Australia grows, although the same expectation was in place six months ago and it didn’t happen.

The yen’s weakness isn’t helpful, though – and the reality is Japanese investors are underweight. In the
event of a dynamic shift in market variables, however, they could come back into the market quite strongly.

McCOLOUGH Having been in Japan last week, I can concur with this. Investors feel there is more depreciation to come for the yen, which is a supportive influence. The performance of semis has been pretty good in this context – and could improve significantly if circumstances change.