Japanese pension funds buy record foreign bonds amid rising global yields

Key facts

• Japanese pension fund proxies bought a record ¥3.16 trillion ($19.7 billion) of foreign bonds in May.
• The purchase volume is the highest recorded since data collection began in 2005.
• U.S. 10-year Treasury yields rose to 4.69% in May, encouraging Japanese investors.
• Geopolitical uncertainty in the Middle East and Federal Reserve policy direction are key factors influencing future purchases.

Proxies for Japanese pension funds made record purchases of overseas bonds in May, acquiring a net ¥3.16 trillion ($19.7 billion) in bank trust accounts. This surge in demand for foreign debt occurred even as domestic yields climbed, with U.S. 10-year Treasury yields reaching 4.69% in mid-May. Analysts suggest that the higher yields in the U.S. market were a primary incentive for Japanese investors. The elevated yields on both U.S. and Japanese bonds have persisted due to fading hopes for a diplomatic resolution to Middle East tensions. While near-term purchases may decrease amid current uncertainty, demand is expected to rebound once greater clarity emerges regarding the geopolitical situation and the U.S. Federal Reserve's monetary policy path.