Japan’s Investors Reassess US Treasuries as Domestic Yields Rise

For decades, Japanese government bonds (JGBs) offered minimal returns, pushing investors toward US financial markets. Japanese investors currently hold about $1 trillion in US Treasuries, making Japan the largest foreign holder of US debt, Fortune reported.

The Bank of Japan (BOJ) has continued to tighten monetary policy while rising inflation has pushed Japanese government bond yields higher. (Photo: Bank of Japan Facebook)

However, this dynamic may be shifting as the Bank of Japan (BOJ) continues tightening monetary policy while rising inflation has pushed Japanese government bond yields higher, making domestic debt more attractive relative to US Treasuries.

Yields on 10- and 30-year JGBs have climbed to their highest levels since the 1990s.

The BOJ is expected to continue tightening policy as inflation pressures persist, partly driven by rising global oil prices linked to Middle East tensions.

At the same time, fiscal stimulus from the Japanese government is adding to inflationary pressures. While US yields have also risen, markets still expect the Federal Reserve’s next move to be a cut, although expectations are being pushed further into the future.