A recent survey from Morgan Asset Management reveals that the gap between Japanese pension funds planning to increase their domestic bond allocations and those intending to reduce them has widened to its largest margin in nearly two decades. This marks a significant shift in sentiment among institutional investors in Japan.

Conducted between April and June this year, the survey polled 82 pension funds and found that 9.8% of them are looking to boost their holdings of Japanese bonds, while only 1.2% plan to cut back. The difference of 8.6 percentage points represents the most pronounced divergence since the survey was first launched in 2008.

Beyond the headline allocation figures, approximately 62% of respondents indicated that they are actively considering changes to how they manage their domestic bond investments. This suggests a broader reassessment of fixed-income strategies is underway within the sector.

The continued pullback from overseas bond allocations is largely attributed to persistently high hedging costs, which have made foreign investments less attractive on a risk-adjusted basis. As a result, many funds are redirecting their focus toward the relative stability and cost-effectiveness of the domestic market.