The Bank of Japan’s decade-long fight against deflation and economic stagnation has resulted in near-zero returns at home, forcing Japanese investors to move their money abroad, often to the United States. In fact, Japan is by far the largest foreign owner of U.S. treasury securities, with Japanese banks, pension funds, insurance companies etc. holding a total of $1.138 trillion at the end of 2023.
Despite the BOJ’s pivotal decision to abandon its long-standing yield curve control and negative interest rate, experts don’t expect an immediate shift in the trillions of dollars that Japanese investors have parked in international bond markets. The BOJ confirmed on Tuesday that it will proceed very cautiously, saying that it expects to maintain “accommodative financial conditions” for the time being.
This will likely result in the yield of Japanese government bonds remaining far below the yields that investors can get abroad. On Tuesday, the yield of Japanese 10-year government bonds stood at 0.73 percent, which is a far cry from the near-zero yields of the past few years, but still considerably lower than the 4.3 percent yield of 10-year U.S. treasury bonds.
