Foreign Investment in Japanese Ultra-Long-Term Bonds Surges 15.5 Billion USD Amid U.S. Tariff Uncertainty

In March, Japanese ultra-long-term government bonds saw a significant influx of foreign investment, driven by heightened risk aversion sentiment triggered by U.S. tariff policies. Global funds net bought 2.18 trillion yen (approximately 15.5 billion USD) of Japanese government bonds with initial maturities exceeding 10 years, marking a record inflow. The total net purchase of all maturities of Japanese government bonds reached 6.03 trillion yen, the second-highest level since 2004.

The demand for Japanese government bonds has been on the rise since March, fueled by market volatility stemming from the tariff policies implemented by the Trump administration. Preliminary weekly data from the Ministry of Finance indicated that foreign funds continued to purchase Japanese government bonds at a significant pace this month.

Historically, U.S. Treasuries have been the go-to safe haven during times of risk. However, during the recent global market turbulence, U.S. Treasuries faced substantial selling pressure and were perceived as a risk source. This was partly due to liquidity issues and de-leveraging in basis trades, but more fundamentally, it was a result of the U.S. government's aggressive use of tariffs, which eroded U.S. creditworthiness and raised concerns about inflation. Consequently, investors shifted their funds towards other safe-haven assets, including Japanese government bonds, the Japanese yen, and gold.

In contrast, domestic Japanese insurance companies sold a record 645.8 billion yen of ultra-long-term Japanese government bonds in March. Data showed that the 30-year Japanese government bond yield reached its highest level since 2006 in mid-March and continued to rise this month. This was attributed to the Bank of Japan's reduced purchases of ultra-long-term government bonds and the heightened volatility in U.S. Treasuries, which disrupted global bond markets.

However, a chief strategist at a major securities firm noted that the scarcity of buyers and the rising yields on U.S. long-term Treasuries could hinder aggressive investment in Japanese ultra-long-term government bonds. March also marked the end of the Japanese fiscal year, during which investors typically adjust their balance sheets.

Domestic Japanese insurance companies held varied views on ultra-long-term Japanese government bonds. One insurance company expressed caution, stating that while the yields on 30-year and 40-year Japanese government bonds were attractive, the market had not yet stabilized. Another insurance company planned to increase its holdings of Japanese government bonds in the new fiscal year starting in April, at a similar pace to the previous year. A third insurance company intended to invest in Japanese ultra-long-term government bonds during the current fiscal year and was considering shifting a portion of its bond investments from large foreign bonds, such as U.S. Treasuries, to Japanese government bonds.