Japan's bond 'falling knife' stalls repatriation rush
TLT•Uncertainty about where Japanese bond yields will peak is holding back a larger return of Japanese investors’ overseas assets. Japan’s 10-year bond yield has risen more than two percentage points in under two years to above 3%, while speculative yen positioning flipped to a $9.7 billion net long in the first two weeks of September.
1. Investors await yield peak
Major Japanese investors remain reluctant to commit heavily to domestic bonds while yields are climbing and policymakers offer few clues about how much further interest rates may rise. Japan’s 10-year government bond yield has climbed more than two percentage points in under two years to a 30-year high above 3%.
2. Repatriation remains limited
Japanese investors bought 4.8 trillion yen of sovereign debt last month, the largest net purchase in three months, while Japanese banks have sold about $70 billion of foreign bonds this year, HSBC estimates. But life insurers, which hold 438.6 trillion yen in assets, move slowly, and the scale of any portfolio shift is unclear.
3. Pension fund could shift flows
Japan’s finance minister has encouraged the $1.8 trillion Government Pension Investment Fund to increase allocations to local markets. Analysts say an official shift by the fund could prompt other domestic investors to change their allocations, while investors are waiting for signs that Japanese yields have peaked.
