Japan Pension Funds Increase Interest in Domestic Bonds as Rates Rise

Japan pension funds domestic bonds allocations are drawing renewed interest as defined-benefit schemes prepare for faster interest-rate increases by the Bank of Japan.

A J.P. Morgan Asset Management survey of 82 funds conducted between April and June found that 10% planned to increase domestic bond holdings, representing the strongest appetite for the asset class since 2008.

Overall domestic bond allocations remained broadly stable at 14.3%, although 62% of respondents were reviewing their domestic bond manager structures.

Around 73% ranked buy-and-hold strategies among their three preferred options for securing stable yields and managing interest-rate risk.

By contrast, the proportion planning to increase global bond holdings edged down to 29.5% from 30% a year earlier because of high currency-hedging costs.

JPMAM Japan CEO Kaguya Komatsu said pension funds were returning to domestic bonds in a different form as monetary tightening creates new yield opportunities.