After years of negligible returns, Japan’s government bonds are drawing fresh attention from households seeking income and diversification.

Japanese asset managers have stepped up their efforts to attract retail investors amid a sharp rise in Japanese government bond yields. After many years of near-zero returns, Japanese government bonds, or JGBs, have once again become an attractive savings instrument.

Mitsubishi UFJ Asset Management, along with Daiwa Asset Management and Amova Asset Management, is offering investment funds focused on ultra-long Japanese government bonds. This reflects a gradual revival in the debt market, where the Bank of Japan has played a central role for more than a decade.

The yield on 30-year JGBs has approached 4%. This is above the yield on 30-year German bonds, which stands at around 3.6%, and is approaching the 5.2% yield on 30-year U.S. Treasury bonds.

Each of the new funds remains relatively small, with assets of no more than 3 billion yen, or about $18.84 million. At the same time, the emergence of such products indicates that financial firms expect Japanese households to show interest in bonds.

Until recently, holding JGBs meant losing money. But now, if you have both JGBs and stocks, you can achieve textbook diversification.

– Takayuki Yagi

New Funds for Long-Term Japanese Government Bonds

The Mitsubishi UFJ Asset Management fund, scheduled to launch in September, will focus on low-coupon bonds with 20 years to maturity. These securities were issued during the Bank of Japan’s ultra-loose monetary policy period.

Recently, prices for such JGBs have fallen significantly, while their yields have risen. The reason has been the Bank of Japan’s prolonged unwinding of its ultra-loose policy. For investors willing to hold the bonds until maturity, the lower price may be advantageous: once the term ends, they receive 100% of the securities’ face value.

The traditional way for Japanese investors to invest in government debt remains retail JGBs, which have been offered since 2003. They have maturities of three, five, or ten years and are not traded on the secondary market. Their share of the overall government bond market remains small, although demand is growing and the government is seeking to broaden the investor base.

Japan’s yield curve is the steepest among major countries, but retail investors have not really had opportunities to benefit from it.

– Shinichi Sawamura

SBI Securities has been selling JGBs with maturities ranging from 10 to 40 years since 2021. Rising yields at the long end give investors more options, but also increase the risk of further declines in bond prices if rates rise again.

Bank of Japan Reduces Its JGB Portfolio

Finding new buyers for Japanese government bonds is becoming increasingly important for the government. According to Takafumi Yamawaki, the Bank of Japan needs to reduce its JGB holdings by 48 trillion yen in the current fiscal year and maintain that pace going forward.

Meanwhile, the Japanese government is expected to increase JGB issuance by 15 trillion yen this year. The funds are intended to finance a large-scale economic stimulus program and tax cuts.

Last November, Amova launched a fund investing in 30-year JGBs and targeting an annual yield of 4%. By the end of June, the fund’s assets had reached 554 million yen, representing slower growth than the company had expected.

Retail investors are concerned that yields could rise even further.

– Takuya Kanazawa

Demand Shifts Toward Shorter-Term Bonds

Due to caution over 30-year securities, some asset managers have shifted their focus to the shorter end of the market. On August 12, the yield on two-year JGBs reached a 31-year high of 1.64% amid expectations that the Bank of Japan could raise rates as early as September.

In June, Daiwa Asset Management added an investment fund focused on two-year Japanese government bonds to its lineup.

This will be a competitive product compared with two-year term deposits. It is also suitable for those who cannot wait 30 years for bonds to mature.

– Yasuaki Matsuba

Thus, rising JGB yields are giving Japanese retail investors access to instruments that for a long time did not generate meaningful returns. At the same time, household demand may become more important for the market as the Bank of Japan gradually reduces its presence among the largest holders of government debt.