Japan’s 10,000-yen bill was minted in Kyoto, Japan, on Thursday, Nov. 2, 2023.
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Japanese government bond yields have been hitting multi-decade highs, according to the benchmark 10 years reaching levels not seen since 1996 last week.
While Japanese bonds have been selling off amid policy normalization by the Bank of Japan and concerns over spending plans by Japanese Prime Minister Sanae Takaichi, experts say the asset class deserves another look from investors.
“JGBs are increasingly moving from “non-investable” to “investable” for global bond investors,” according to Masahiko Loo, fixed income strategist at State Street Investment Management.
Loo said the 10-year high yield means investors are “finally” getting paid to own Japanese paper again.
The 10-year JGB yield hit 2.901% last Thursday and is currently trading at 2.781%, more than 70 basis points higher since the start of the year. The yield on 20-year JGBs also rose 3.901% last Thursday.
JGBs negatively impacted the Bank of Japan’s yield curve control program, with the 10-year yield target set at “zero,” as Japan sought to restructure its economy. The country left the YCC in March 2024 as part of its efforts to normalize monetary policy.
The founder of Hong Kong-based research firm Gavekal, Charles Gave, said in a research note last week that Japanese government bond yields are higher than they should be.
“The asset to buy in Japan is the one that nobody has: Japanese bonds, especially long Japanese bonds. The Japanese bond market is probably the most attractive bond market in the world today.”
Investors should move to a “balanced” Japanese portfolio if they have no holdings in Japan, with 50% stocks and 50% bonds, other investors should replace their euro and US bonds, and gold, with old Japanese bonds, Gave said.
“In the near future, Japanese yields will begin to fall and the yen will begin to rise, especially if oil remains at the current price. Therefore, long-term Japanese bonds should significantly outperform gold in terms of the yen for the foreseeable future,” he added.
Some analysts, however, differ on the attractiveness of Japanese bonds.
Henning Potstada, global head of multi-assets at Germany-based asset manager DWS said some bond markets, such as European bonds, are still very attractive because of the high level of policy. The European Central Bank, Potstada revealed, has rates at 2.25%, compared to the BOJ’s 1%.
Postada added that debt sustainability is a major concern for Japan, with Tokyo’s debt-to-GDP ratio at over 200% compared to 81.7% for the EU. “If you have European positions stay or do more in Europe, because the problems of credit stability, we think will continue, and for these investors, Europe offers stability.”
Earth impact
Lauren Hyslop, chief investment officer at Mattioli Woods, said that as Japanese government bond yields continued to rise, investors were “choosing” to return to the market.
“Foreign investors returned to the 20- to 30-year phase as yields broke above 3.5%, with a record 9.3 trillion yen flowing into Japan’s old debt in 2025 alone,” he said in an email. “The 10-year at around 2.87% is close to what most major houses consider a fair value, in line with Japan’s growth and inflation outlook.”
Very long positions, however, are “live risk.”
“Life insurers become forced sellers when the 30-year breaks 4.5%, so that rate is an opportunity and a danger zone,” Hyslop said. “The GPIF, the world’s largest pension fund, remains a potentially large investor and any reallocation to domestic bonds from its $1.8 trillion pool would be a major stabilizing force.”
Hyslop told CNBC that these changes have structural implications for the global bond market. “Japan spent two decades as a silent sponsor of global debt. That time has passed,” he said.
Last Friday, Japan’s Finance Minister Satsuki Katayama reportedly said Tokyo would seek ways to encourage pension funds, including the GPIF, to make “larger investments in Japanese financial assets.”
While the government is looking at ways to boost such investments, there are no immediate changes to GPIF’s medium-term goals, according to a Reuters report.
“As domestic yields rise, Japanese investors repatriate capital, selling $29.6 billion of U.S. debt in the first quarter of 2026 alone and displacing a reliable buyer from markets already reeling from massive liquidity deficits.”
John Sidawi, senior global fixed-income portfolio manager at Federated Hermes, told CNBC in an email that while Japan’s 10-year bond yield is touching a decade high, “a mix of uncertainties” is still holding back demand for the term.
“Namely, the newly created financial pressures and the general situation that the Bank of Japan is still behind the curve. [on raising rates],” he said. “This shift is further exacerbated by regional tensions in the Middle East that have been putting increasing pressure on global growth.”
