Japanese investors are turning their attention back home as benchmark 10‑year government bond yields rose above the 3% mark for the first time since 1996. The rise, reported by Reuters on September 2, signals a shift in capital allocation that could affect global bond markets.
Domestic demand rises
Official data show Japanese investors have sold a net 3 trillion yen (about $18.7 billion) of overseas debt through August 22, the largest year‑to‑date outflow since the bond market slump of 2022. Market participants in Sydney, London and Singapore have noted the slowdown in Japanese demand for foreign bonds.
“I know it first hand from talking to Japanese investors,” said Michael Weidner, co‑head of global fixed income at Lazard Asset Management. “They’ve underinvested in yen securities for probably 25 years. Now it’s become more attractive and they are reallocating.”
Investor sentiment on U.S. Treasuries
Tokyo‑based fund manager Toshinobu Chiba of Simplex Asset Management said he has become bearish on U.S. Treasuries, opting instead to buy the 10‑year Japanese bond as yields climbed. “It’s easy to buy the 10‑year at above 3%,” Chiba explained, noting that many long‑term investors now have a strong incentive to purchase domestically.
In Australia, Citi’s head of markets sales for Australia and New Zealand, Ryan Ellis, observed that Japanese investors are showing a “home market bias for the first time in a lot of years,” driven by a return‑focused decision amid local central‑bank rate hikes.
Pension fund trends
A survey of 82 corporate Japanese pension funds by J.P. Morgan Asset Management revealed the highest net share planning to increase domestic bond holdings since the poll began in 2008. The funds continue to trim overseas debt exposure due to high currency‑hedging costs.
Masayuki Nakajima, senior strategist at Mizuho Bank in London, noted that as Japanese bond yields rise, the relative attractiveness of domestic bonds improves on a currency‑hedged basis, encouraging a shift back into Japanese fixed income.
Broader market impact
Over the past two years, the 10‑year Japanese bond yield has more than tripled, while the 10‑year U.S. Treasury yield has risen about one percentage point, narrowing the yield gap by over 100 basis points. Analysts say this reduces the marginal demand for foreign bonds from Japan, potentially pushing global term premiums higher.
While the Bank of Japan has yet to stabilize yields, officials indicate a willingness to raise rates more rapidly than markets expect. Prime Minister Sanae Takaichi’s push for increased fiscal spending and Finance Minister Satsuki Katayama’s commitment to prudent debt management also support the yield rise.
Looking ahead
Experts caution that the shift will not be a rapid, large‑scale repatriation of funds. Instead, Japan appears to be gradually ceasing to be a marginal buyer of foreign bonds, a change that could influence global bond market dynamics for the foreseeable future.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
