After years of offering virtually no returns to investors, Japanese government bonds (JGBs) have suddenly become attractive again, prompting domestic asset managers to rush to provide ordinary investors with access to this market. With long-term JGB yields now on par with those of U.S. Treasuries and German Bunds, Mitsubishi UFJ Asset Management has joined Daiwa Asset Management and Amova Asset Management in launching investment trusts focused on ultra-long-term bonds.

Japan's 30-year bond yield is nearing 4%, surpassing the approximately 3.6% yield on 30-year German Bunds and approaching the 5.2% yield on 30-year U.S. Treasuries. Although each fund remains relatively small, with sizes not exceeding 30 billion yen ($18.84 million), the emergence of these products signals that the bond market, long dominated by the Bank of Japan (BOJ) for over a decade, is regaining vitality.

"Until recently, holding JGBs meant losing money," said Takayuki Yagi, an executive at Mitsubishi UFJ. "But now, if you hold both JGBs and stocks, you can achieve textbook-style diversification." The fund planned by Mitsubishi UFJ Asset Management for launch in September will focus on 20-year low-coupon JGBs issued during the BOJ's ultra-loose monetary policy era. Due to the BOJ's gradual policy normalization, these bonds have seen significant price declines and sharp yield increases. However, if held to maturity, they can be redeemed at 100% face value, meaning current discounts on purchases can generate returns.

"Japan's yield curve is the steepest among major economies, but retail investors haven't yet had a real opportunity to profit from it," said Shinichi Sawamura, General Manager of the Fixed Income Division at SBI Securities. His firm has been selling JGBs with maturities ranging from 10 to 40 years since 2021. Finding buyers for JGBs is crucial for the Japanese government. According to Takafumi Yamawaki, Head of Japan Interest Rate Research at JPMorgan Securities Japan, the BOJ is expected to reduce its JGB holdings by 48 trillion yen this fiscal year and maintain this pace of reduction. Yamawaki added that the Japanese government is projected to increase its bond issuance by 15 trillion yen this year, continuing to raise funds through the bond market to support large-scale stimulus packages and tax cuts.