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Why Japanese Investors Are Moving Back Into The Euro? - Morgan Stanley

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"Japanese investors appear to have regained a particularly strong appetite for EUR assets. Indeed, with the JPY weakening, Japanese investors appear to have moved into the EUR, with EUR crosses gaining across the board. This relationship does not come as a surprise given the apparent magnitude at which Japanese investors have moved funds back into European bond markets...While the increase in JPY liquidity has changed the risk preference of Japanese investors, increasing the willingness to allocate overseas once again, we believe that there are two main reasons for Japanese investors to favour EUR assets once again. First, the effectiveness of policy measures taken in Europe, especially by the ECB, to stabilize asset markets and repair the monetary transmission mechanism, has reduced risk premium and volatility, allowing investors to reconsider returning to EMU markets. The other factor is yield. In an environment of globally low yields, even against traditionally higher-yielding (and higher-risk) currencies, the yields on offer at the periphery of Europe are now attractive, especially as these markets are starting to display the characteristics of a homogeneous sovereign bond market once again, making them eligible for direct comparison to their international G10 peers."

Ian Stannard, Hans Redeker, and Meena Bassily - Morgan Stanley

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