JAPANESE SEEN LIGHTENING U.S. BOND HOLDINGS
The dollar's tumble to a record low of
144.70 yen in Tokyo today motivated some major Japanese
investors to lighten their U.S. Bond inventory further and is
expected to spur diversification into investment assets
including foreign and domestic shares, dealers said.
    The key U.S. 7-1/2 pct Treasury bond due 2016 fell to a low
of 96.08-12 in early Tokyo trade against the 98.05-06 New York
finish, then recovered to 96.20-22.
    Some trust bank pension fund acccounts and investment
trusts were seen selling several hundred million dollars on the
foreign exchange market here today, accentuating the unit's
tumble, securities house dealers said.
    They seem undecided on what to do with the fresh yen cash
positions resulting from their dollar sales today, and are
sidelined until the currency market stabilises and the interest
rates outlook clarifies, a Nikko Securities Co Ltd currency
trader said.
    The dollar's plunge and low yields on U.S. Bonds will
further promote diversification into other foreign investments,
as well as call back funds into the domestic bond and stock
markets from overseas bond markets, securities bond managers
said.
    They said major Japanese investors in the past two years
are estimated to have held 50 to 80 pct of their foreign
portfolios in U.S. Bonds but many have lightened their U.S.
Bond inventory to as low as 40 pct.
    Since late last year, Japanese investors, seeking
substantial liquidity and attractive yields, have used fresh
funds to buy mark and Canadian dollar bonds and, after the
Paris currency pact, actively bought French franc bonds and
gilts while gradually lightening U.S. Bond inventories, the
managers said.
    Dealers said funds tied up in foreign assets had flowed
into local bond and stock markets as well.
    The yield of the key 5.1 pct 89th bond dropped to a record
low of 4.080 pct today from the 4.140 Saturday finish and
compared with 4.25 pct on three-month certificates of deposit.
    The key bond has fluctuated less than five basis points for
more than a month here, suggesting most dealers could not
satisfy their needs for capital gains, dealers said.
    A market survey by Reuters showed some active accounts in
U.S. Treasuries are currently dealing on Tokyo's stock market.
The stock market's bullishness late last week was partly due to
funds transferred from U.S. Treasuries, dealers said.
    Japanese net purchases of foreign securities in the first
half of March fell an estimated one billion dlrs compared with
average monthly net purchases of 7.7 billion for the whole of
1986, Finance Ministry sources said.
    The steep fall is due to Japanese investors' cool attitude
towards U.S. Bonds, which had amounted to more than 80 pct of
total foreign securities purchased, securities houses managers
said.
    Foreign stock buying in March is expected to exceed the
record high of 1.5 billion dlrs seen in December, they said.
    "Diversification of foreign portfolios is underway and we
have bought bonds in currencies such as marks, the Canadian
dollar, the ECU and French franc," a fund manager at <Yasuda
Trust and Banking Co Ltd> said.
 REUTER
