The country runs a large current account surplus and Japanese investors have routinely recycled that by buying up bonds in investment grade markets in Europe, and more recently China, to diversify from the extremely low interest rates at home.
Italy and South Africa are appealing to money managers as they are among the few countries that still boast a steep yield curve. In both countries, long-term yields are well above shorter ones. "Japanese investors are gradually lowering the grade they invest in" said Koichi Sugisaki, executive director at Morgan Stanley MUFG Securities in Tokyo.
"I expect U.S.-China trade friction to remain a risk in 2020," said Toshinobu Chiba, chief portfolio manager at Nissay Asset Management in Tokyo."I want to be overweight in Indonesia andMalaysia." Japan's large banks now hold around 15% of the global CLO market, and 99% of these holdings are tranches rated AAA, according to the BOJ.