Mrs Watanabe is back in love with Australian bonds.

Net buying last year of Australian dollar denominated bonds by Japanese investors, measured in Australian dollars, was the biggest since the data series began in 2005, according to RBC Capital markets.

About US$23.4 billion of Australian dollar denominated fixed income securities were bought by Japan-based buyers in 2016, RBC said. The feverish buying comes as the 10-year benchmark Australian government bond rallied to a 1-year high.

Australia relies on foreigners to buy its bonds as issuance balloons amid ongoing budget deficits. Outstanding Australian Government Securities on Issue totalled $476 billion, as of February 3, according to the government’s funding arm, the Australian Office of Financial Management. Mrs Watanabe, the market metaphor for the Japanese housewife and custodians of family savings, typically turns to high yielding markets such as Australia to boost returns amid zero or negative rates at home.

Continued buying by Japanese comes as the proportion of federal securities held by non-resident investors in the third quarter fell to just 58 percent, the least since 2009, according to official data. The share held by foreigners had peaked at 76 percent in 2012.

Japanese buyers took a net $1.6 billion of Australian bonds in December, RBC said. The buying had an effect on financial markets with the Aussie rallying against the yen. The Australian currency was on average 4.5% higher relative to where it was in November and about 10% over the third quarter levels. The jump in 10-year yields to 2.8% cushioned the currency gains, RBC said.

Japanese inflows were skewed toward federal government bonds and state government securities in December with the investment reaching $1.1 billion or more than double that of other debt. For 2016 net purchases of such paper totaled $7.5 billion and other securities summed $15.9 billion, RBC said. The data reveals Japanese investors have once again taken a liking to government debt following a long period in which they were inactive, RBC said.

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