Japanese government bonds have historically offered very low returns, pushing investors to seek higher yields abroad, especially in U.S. markets. Japanese investors now hold about $1 trillion in U.S. Treasuries and are the largest foreign holders of U.S. debt. That pattern may reverse as the Bank of Japan raises rates and hotter inflation lifts JGB yields, making them more attractive than Treasuries. Ten- and 30-year JGB yields have reached the highest levels since the 1990s, and further tightening is expected. Prime Minister Sanae Takaichi’s spending plans could add to inflation and support higher yields. Signs of repatriation include record inflows into Japanese sovereign bond funds, with expectations that new money will be allocated domestically.
"Japanese investors now collectively own about $1 trillion in Treasuries and are the largest foreign holders of U.S. debt. But that could change soon as the Bank of Japan has been hiking rates while hotter inflation has lifted JGB yields, which are now looking more attractive and emerging as an alternative to Treasury bonds."
"Yields for 10- and 30-year JGBs have soared to the highest levels since the 1990s, and the central bank is expected to tighten for the fifth time since 2024 as the Iran war sends oil prices higher. Meanwhile, Prime Minister Sanae Takaichi is seen boosting government spending as part of her efforts to revive growth and offset the oil shock, adding to inflationary trends."
"There are already signs that money is being repatriated as March saw the largest monthly inflow ever into Japanese sovereign bond funds. "The new money that's being put to work won't be put to work overseas," Mark Dowding, chief investment officer at BlueBay, told the Financial Times. "It won't be going into U.S. corporate bonds. It won't be going into U.S. Treasuries. It will be going into those domestic allocations.""
"Next month, investors widely anticipate the Bank of Japan to lift rates again, sending the benchmark from a three-decade high of 0.75% to 1%. That will cap a stunning reversal after the central bank maintained ultra-low rates-and even negative rates for several years-to fight deflation amid a stagnating economy."
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