Global Funds Flee Japan's Ultra-Long Bonds as BOJ Policy Pace Faces Scrutiny
Claire Weston
T. Rowe Price, Schroders, and Brandywine have all cut ultra-long JGB exposure in recent weeks; in April, foreign net selling of these bonds turned negative for the first time since 2024. The issue is not yield — it is a growing conviction that the BOJ is tightening too slowly while Tokyo spends too freely, a contradiction that no single rate hike can resolve.
Why are global funds retreating barely a year after returning?
Last year, global bond managers piled into JGBs as yields hit multi-decade highs. Just over a year later, T. Rowe Price, Schroders, and Brandywine have all trimmed or downgraded their positions to tactical-only.
This means → even though yields are higher now, investors judge that the risks of holding have risen faster — elevated yield has not kept pace with elevated uncertainty.
Brandywine portfolio manager Carol Lye put it plainly: Japan sits in a deeply negative real-rate environment (policy rate minus inflation is well below zero), and "we believe the BOJ is to some extent behind the curve."
What does "behind the curve" actually mean here?
In plain terms = the central bank is raising rates, but not fast enough to catch up with inflation — after every hike, real rates are still negative, so it is always chasing and never arriving.
This reflects a core market contradiction: everyone expects the BOJ to hike again soon, yet almost everyone also believes the hikes are too small and too slow to genuinely contain inflation or stabilize the long end.
T. Rowe Price's Vincent Chung bought JGBs in January after being underweight for a full year — then cut exposure again just one month later as fiscal concerns mounted. That speed signals extremely fragile conviction.
Why is fiscal expansion pouring fuel on the fire?
Prime Minister Sanae Takaichi has pushed supplementary budgets and called for measures to ease household cost-of-living pressures. The market reads a clear signal: the government is spending while the central bank is trying to tighten — two policies pulling in opposite directions.
This means → if Tokyo issues more bonds while simultaneously pressuring the BOJ to slow its hikes, ultra-long supply rises and buyer confidence falls — prices get squeezed from both sides.
Shinichiro Arie, co-head of fixed income at Amundi Japan, is blunt: to shift from underweight, "the key is for the government to stop intervening in monetary policy."
Hedged yields top 6% — why is that still not enough?
On paper, 30-year JGBs offer dollar-based investors a hedged implied yield above 6%, roughly 170 basis points over equivalent U.S. Treasuries.
In plain terms = that is an extra 1.7 percentage points a year on top of Treasuries — ordinarily a compelling trade.
But volatility undoes the math: 30-year yields have risen more than 40 basis points year-to-date, and thin liquidity amplifies swings. Many holders have already booked mark-to-market losses. This means → the high carry on paper has been eaten by real-world price moves.
Where is the smart money hiding on the curve?
Fidelity International's Asia fixed-income head Lei Zhu captures the consensus view: stay away from the ultra-long end; favor the 3-to-5-year segment.
This means → mid-curve maturities offer better policy visibility — in three to five years the BOJ will likely have completed several more hikes, making outcomes more predictable. The endpoint of a 30-year bond is anyone's guess.
This reflects a broader market stance: it is not that investors dislike JGBs — they are only willing to bet on the part of the curve they can see clearly.
Why is yen weakness the most telling signal?
Under normal logic, rising JGB yields should narrow the rate gap with U.S. Treasuries, boost the appeal of yen assets, and strengthen the currency. Instead, the yen keeps sliding.
In plain terms = yields are up, yet money is flowing out rather than in — investors do not trust the overall policy mix.
BofA Securities notes that shorting Japanese duration is now one of the market's most crowded trades. This means → the consensus is not "JGBs are overpriced" but rather "Japan's policy contradiction has no near-term fix."
Content is for reference only, not financial advice.