Carry trade sees Japanese inflows to Asia hit record 1.82 trillion yen

Japanese investors are buying Asian assets like never before as Prime Minister Shinzo Abe's policies make the yen a lucrative means to fund bets on regional growth.

A net 1.82 trillion yen (HK$120 billion) flowed into stocks and bonds in the rest of Asia in the first nine months of 2014, 76 per cent more than the previous record in 2007, data from Japan's Ministry of Finance showed. Borrowing in yen to invest in the 10 currencies that make up the Bloomberg-JPMorgan Asia Dollar Index returned an annualised 13 per cent for the year to date.

That beat so-called carry trades funded in euros and US dollars, which gained 11 per cent and 0.3 per cent, respectively.

Abe's unprecedented stimulus to fuel inflation has boosted Asian markets, providing them with a buffer against potential outflows as the United States prepares to raise borrowing costs next year.

Inflows to Asia are also bolstered by the People's Bank of China's decision to cut interest rates for the first time since 2012 and as the European Central Bank considers further monetary easing.

"Japanese investors caught the same grab-for-yield bug that investors everywhere caught," said Tim Condon, head of Asian research at ING Groep in Singapore. "With the PBOC joining the Bank of Japan in increasing accommodation and the ECB expected to join, the grab for yield looks set to persist in 2015."