End the era of "zero yield"! Japanese bond yields soar, nearing US Treasuries, as asset management giants rush into Japan's government bond new blue ocean.

It has been noted that after years of paying nearly zero returns to investors, Japanese government bonds have suddenly regained their holding value, prompting domestic asset management companies to rush to open investment channels for ordinary investors. With long-term Japanese government bond yields now comparable to those of U.S. and German government bonds, Mitsubishi UFJ Asset Management has joined the ranks of Daiwa Asset Management and Amova Asset Management by launching investment trust funds focused on ultra-long-term government bonds. The trading yield on Japan's 30-year government bonds has approached 4%, exceeding Germany's 30-year government bond yield of about 3.6% and nearing the U.S. 30-year government bond yield of 5.2%. Although the scale of each fund is relatively small (not exceeding 30 billion yen, approximately 188.4 million USD), their rapid emergence signals a revival and vigor in a bond market that has been dominated by the central bank for over a decade. Takayuki Yagi of Mitsubishi UFJ stated, Until recently, holding Japanese government bonds would result in losses, adding, but now, by allocating both Japanese government bonds and stocks, one can achieve a textbook definition of a diversified investment portfolio. The fund that Mitsubishi UFJ Asset Management plans to launch in September will primarily invest in low-coupon government bonds with a maturity of 20 years issued during the period of the Bank of Japan's ultra-loose monetary policy. As the Bank of Japan advances its long-term policy normalization, prices of these Japanese government bonds have recently dropped significantly, pushing yields higher. However, for buyers holding to maturity, this discounted purchase offers significant returns, as they will receive 100% of the face value at that time. The primary avenue for Japanese households to invest in government bonds has traditionally been through so-called "individual Japanese government bonds," which have been offered since 2003, with maturities of 3, 5, and 10 years. These securities do not participate in market trading and still account for a relatively small share of the overall Japanese government bond market, although that market is growing rapidly, and the Japanese government is working to increase its acceptance to diversify its pool of investors. Shinichi Sawamura, General Manager of the Fixed Income Department at SBI Securities, stated, Japans yield curve is the steepest among major countries, but retail investors have not had many opportunities to take advantage of this, noting that the company has been selling Japanese government bonds with maturities between 10 and 40 years since 2021. The Bank of Japan is reducing its holdings of Japanese government bonds. Finding willing Japanese government bond buyers is crucial for the Japanese government. Takafumi Yamawaki, Head of Japanese Rates Research at JPMorgan Securities Japan, indicated that the Bank of Japan is expected to reduce its holdings of Japanese government bonds by 48 trillion yen this fiscal year and will maintain this pace of reduction. Yamawaki further noted that, in contrast, the Japanese government is expected to increase its bond issuance by 15 trillion yen this year and continue to raise funds through the debt market to finance a large-scale economic stimulus program and tax cuts. Amova launched an investment trust targeting 30-year Japanese government bonds in November last year, aiming to provide an annualized return rate of 4%. As of the end of June, the fund's asset size was 554 million yen, growing more slowly than expected. Takuya Kanazawa, Senior Vice President of Product Development at Amova, remarked, Retail investors are concerned that yields may rise further. As a result, some asset management companies have shifted their focus to shorter-term Japanese government bonds. With the market wagering that the Bank of Japan may raise interest rates as early as September, the yield on 2-year Japanese government bonds reached a 31-year high of 1.64% on Wednesday. Daiwa Asset Management added a new investment trust focusing on Japanese government bonds maturing within two years in June. This will be a highly competitive product for 2-year fixed-term deposits, said Yasuaki Matsuba, Executive Managing Director of the company, adding, For those who cannot wait for 30-year government bonds to mature, this is also a good choice.