Japanese Bond Yields Top 3% as Investors Shift from Foreign Debt

The yield on newly issued 10-year Japanese Government Bonds has climbed above 3% for the first time in roughly three decades, marking a significant shift in Japanese money flows.

This change is prompting Japanese investors to reassess their asset allocations and shift funds from foreign bonds back into domestic debt. Net sales of overseas bonds from the start of the year through August 22 reached ¥3 trillion (approximately $18.8 billion), the largest such move since the global bond rout of 2022.

Michael Weidner, co-head of global fixed income at Lazard Asset Management, noted that Japanese investors have refrained from investing in yen-denominated securities for roughly 25 years. With yen-denominated securities now becoming more attractive, a reconsideration of asset allocation is underway.

The Government Pension Investment Fund (GPIF), which manages approximately ¥318 trillion (approximately $2.0 trillion) in assets, may raise its domestic bond allocation from 25% to 30%, shifting approximately ¥16 trillion (approximately $100.1 billion) from overseas assets into Japanese bonds.