Japanese asset managers, including units of Mizuho Financial Group and Nomura Holdings, are rapidly launching bond funds to meet growing interest in Japanese debt. This surge is driven by higher interest rates, which have made yields on yen-denominated bonds attractive for the first time in decades.

Asset Management One (AMO), the asset management arm of Mizuho Financial Group and partially owned by life insurer Daiichi Life, launched an actively managed yen bond fund aimed at foreign investors in February—its first in about 30 years. The fund has since secured its first mandate to manage funds for a Western institutional investor, according to sources familiar with the matter.

Nomura Holdings' asset management division is also preparing to launch an actively managed bond fund that includes Japanese Government Bonds (JGBs) and corporate bonds. It expects to win a management mandate from an overseas institutional investor, said Yuji Ishida, head of client portfolio management at Nomura Asset Management in Tokyo.

The market is deepening as more Japanese companies issue bonds for growth financing. Japan's asset managers are leveraging their expertise in the corporate bond market to attract investors who are gradually increasing their allocation to yen-denominated debt.

Overseas investment in yen bonds has increased following the Bank of Japan's policy normalization starting in 2024, which allowed bond yields to rise.

Takeshi Miki, senior executive officer and head of the institutional investor fiduciary management department at AMO, noted the challenge of attracting investors to global equity strategies from the Far East and emphasized the unique value Japanese yen bonds offer.

Shinichiro Arie, managing director and co-head of the fixed-income department at Amundi Japan, said interest rates are still rising, prompting a cautious approach to timing entry, but expects the rally to eventually run its course.

A-rated corporate bonds typically generate a stable spread of 50 to 60 basis points over JGBs, providing investors with both fixed spreads and yields on government bonds.

Investors are increasingly inquiring about yields over three-year holding periods and model portfolios, signaling growing demand. The launch of exchange-traded funds (ETFs) is also expected to boost liquidity and facilitate foreign investor participation.

Sources:

  • AMO, partially owned by Daiichi Life, launched its first foreign investor-focused yen bond fund in 30 years in February.
  • AMO has secured a Western institutional investor mandate for its yen bond fund.
  • Nomura Asset Management is launching a bond fund including JGBs and corporate bonds, aiming for overseas mandates.
  • Bank of Japan's policy normalization since 2024 has increased overseas investment in yen bonds.
  • Industry experts highlight the attractiveness of yen bonds amid rising interest rates and stable corporate bond spreads.