Yen Weakness Drives Record ETF Inflows into Japanese Bonds

Global investors are pouring record amounts of cash into Japanese government bond exchange-traded funds (ETFs), drawn by yields on 10-year bonds that have risen to nearly 3%.

This is a significant shift from previous years, when Japan was seen as the world's low-yield outlier due to weak inflation and big purchases by the Bank of Japan (BOJ) keeping borrowing costs near zero.

However, with inflation picking up and the central bank raising rates, 10-year Japanese government bond (JGB) yields have jumped from around 0.1% at the start of 2022 to 2.93% earlier this month, according to LSEG data cited by Reuters.

Fund flows have followed suit, with Morningstar reporting that Japanese bond ETFs have taken in a record $1.5 billion so far this year and BlackRock's Europe-domiciled JGB ETFs bringing in $1.4 billion after outflows last year.