Foreign investors are storming into Japan’s once-placid government bond market, exposing the world’s second-largest pool of sovereign debt to bouts of volatility sparked by traders thousands of miles away.
Overseas investors now account for roughly 65% of monthly cash JGB transactions, up from 12% in 2009, Japan Securities Dealers Association data show. While they’re on course to scoop up more Japanese government bonds this year than in any period since records began in 2005, according to Finance Ministry data, not everyone’s a buyer and increased foreign involvement also raises the risk of a rapid or unruly retreat.
The shift comes at a sensitive time for Japan’s policymakers. Prime Minister Sanae Takaichi unleashed the country’s biggest burst of spending since pandemic restrictions eased, just as the Bank of Japan trims its own bond purchases. Yields are already lodged at multidecade highs. The newcomers, from hedge funds to global asset managers, represent both a source of demand but also a layer of volatility that can spill from Tokyo’s $7.4 trillion bond market into Treasuries, gilts and bunds.
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