Japan fund managers chase retail cash as JGB yields surge

Japanese asset managers are rushing to offer retail investors access to long-term Japanese government bonds (JGBs) as yields surge, outpacing those of U.S. Treasuries and German bunds. Mitsubishi UFJ Asset Management, Daiwa Asset Management, and Amova Asset Management have all launched investment trusts focused on these super-long bonds, with yields now at near 4%—higher than Germany's 3.6% and close to the 5.2% of U.S. Treasuries.

While the funds are small, each holding no more than ¥3 billion ($18.84 million), their emergence indicates a revitalization of the debt market that had been dominated by the central bank for over a decade. Takayuki Yagi, an executive officer at Mitsubishi UFJ, explains that diversifying between JGBs and stocks can now provide textbook diversification.

The Bank of Japan's (BOJ) reduction in JGB holdings and continued pace of reduction, combined with increased issuance to fund stimulus plans and tax cuts, has created a demand for retail investors to participate in the JGB market. Amova's investment trust, launched in November last year, aims to deliver 4% annual returns, but retail investors have become wary of further yield increases.

Daiwa Asset Management has also added an investment trust focused on JGBs maturing in two years, hoping to compete against two-year fixed deposits.