Key facts
- Japanese corporate pension funds are increasing domestic bond holdings due to rising yields.
- The 10-year Japanese government bond yield reached 3% for the first time since 1996.
- Japanese investors have sold a net 3 trillion yen in overseas debt year-to-date.
- A survey indicates the highest planned increase in domestic bond holdings by corporate pension funds since 2008.
- Higher yields in Japan are making domestic bonds more attractive on a currency-hedged basis.
Japanese corporate pension funds are increasingly reallocating capital into domestic bonds, a reversal of a long-standing trend driven by rising yields and currency hedging costs. Benchmark Japanese bond yields have surpassed a three-decade-old barrier, reaching 3% for the first time since 1996, making domestic securities more attractive. This shift is significant as Japanese investors have historically been major buyers of global debt, including U.S. Treasuries.
Official data indicates Japanese investors have sold a net 3 trillion yen ($18.7 billion) in overseas debt year-to-date, the largest outflow since 2022. Market participants in Sydney, London, and Singapore have observed this pullback. A survey by J.P. Morgan Asset Management revealed that the net share of corporate pension funds planning to increase domestic bond holdings is at its highest level since the poll began in 2008. These funds are also reducing their holdings of overseas debt due to high currency hedging costs.
The narrowing yield gap between Japanese government bonds (JGBs) and international bonds, such as U.S. Treasuries, is a key factor. While JGB yields have more than tripled over the past two years, U.S. Treasury yields have climbed by a smaller margin. This reduced relative value is prompting Japanese investors to re-evaluate their overseas positions. The trend suggests Japan may be ceasing to be the marginal buyer of foreign bonds, which could contribute to higher term premiums globally.