Higher Bond Yields Keep Institutional Funds at Home

Fitch Ratings expects Japanese institutional investors to keep more funds at home as higher bond yields make domestic assets more appealing.

The ratings agency predicts that the Bank of Japan (BOJ) will raise interest rates more quickly than market consensus in 2026 and 2027, supporting the yen and increasing the appeal of domestic bonds.

Rising Japanese inflation, monetary policy, and growth prospects are driving higher domestic real interest rates, reducing the incentive for institutional investors to pursue lower-yielding foreign assets.

The yield on 10-year Japanese government bonds (JGBs) reached 3% last week, its highest level since September 1996.