BOJ Flags Risk to Japan Bonds From Foreign Hedge Funds Unwinding

The Bank of Japan cautioned that a potential unwinding of positions by hedge funds globally may spread to Japan’s bond market.

Overseas hedge funds “have been increasing their presence in Japan’s bond market,” the BOJ said Tuesday in its semiannual Financial System Report. “Close attention is needed to the possibility that, if foreign hedge funds were to unwind positions globally in an event of stress, the impact could spread to Japan’s bond market through, for instance, a decline in market liquidity.”