Japanese investors boost government bond purchases to 17-year high

Japanese institutional investors surged purchases of Japanese government bonds (JGBs) to a 17-year high during the first half of the fiscal year, reaching ¥18.8tn ($119bn), according to Bloomberg. The notable uptick in JGB purchases was driven by pension fund rebalancing, rising global bond yields, and shifts in fixed income allocations, as reported by Bloomberg.

Trust banks, acting on behalf of pension funds, were responsible for nearly half of the buying, while commercial banks contributed roughly one-third. Keisuke Tsuruta, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, attributed the surge to portfolio rebalancing by public pension funds following robust equity market performance and yen depreciation, leading to a reallocation from equities to bonds.

Demand for domestic debt remained robust at the recent auction of 20-year JGBs, which witnessed record demand. Meanwhile, Japanese investors exhibited contrasting strategies when it came to overseas fixed income. Trust bank accounts bought ¥10.1tn worth of foreign bonds during the six-month period, while domestic banks sold ¥7.4tn, marking their largest net disposals since at least 2014, as per Bloomberg.

Tsuruta explained that expectations of higher oil prices pushing up yields had prompted banks to reduce exposure to US Treasuries and European government bonds. At the same time, domestic bond purchases were partly driven by the necessity to generate returns on deposit funding. The data underscores the evolving institutional positioning across global sovereign debt markets as inflation pressures, currency fluctuations, and surging yields reshape fixed income allocations.