Japanese Bond Market Regains Appeal as Institutions Reassess "Long Stocks, Short Bonds" Strategy
nashnova research
Japan's 10-year government bond yield has climbed to roughly 3%, making bonds the most attractive versus equities in nearly two decades — JPMorgan Asset Management and MUFG Asset Management have already closed short positions, signaling the dominant trade of the Takaichi era is unraveling.
Why is the "short JGBs" trade losing its edge?
In Takaichi's first year, expansionary fiscal policy and surging debt issuance nearly doubled the 10-year JGB yield to about 3%; ultra-long bonds (30- and 40-year) hit all-time highs.
This means → bond prices have already fallen sharply, squeezing the profit left for shorts, while the coupon income from holding bonds has become genuinely attractive.
Sylvia Sheng, chief portfolio manager at JPMorgan Asset Management, closed her 10-year JGB short in September and moved to neutral. Kiyoshi Ishigane at MUFG Asset Management began trimming his underweight after yields broke 2.5%.
What does a 3% yield actually mean?
The 10-year JGB yield now clearly exceeds the Topix dividend yield of roughly 2.3% — the widest spread since records began in 2005.
In plain terms = bonds now pay more annual income than stocks, with less risk — something almost unseen in the past twenty years.
Ishigane put it directly: "Investors can earn about 3% just by holding bonds, without taking any additional risk."
Open interest in JGB futures has dropped from a September peak of about 211,000 contracts to roughly 186,000, confirming shorts are exiting.
How is U.S. pressure reshaping Bank of Japan rate expectations?
Treasury Secretary Scott Bessent has repeatedly pushed Japan toward fiscal discipline and higher rates, criticizing reflation policies for weakening the yen.
After a joint U.S.–Japan currency intervention to support the yen in late July, markets now suspect Washington's leverage over Tokyo has grown.
This means → the Takaichi government can no longer tolerate further yen depreciation — effectively giving the Bank of Japan a green light to hike.
How fast could rate hikes come?
Yoshitaka Miura, fund manager at Asset Management One, says the market consensus has shifted from a hike every six months to every three months.
Claire Huang, senior Asia macro strategist at AXA Investment Managers, argues faster hikes will drive a classic yield-curve flattening — short-end yields rise while ultra-long yields stabilize or fall.
In plain terms = the central bank's hikes push short-term rates up directly, but long-term rates may actually peak — because the market starts to believe inflation will be brought under control.
What does a bond-market revival mean for equities?
Ishigane warned bluntly: rising yields have "no positive implications for equities" — higher bond returns will pull capital away from stocks.
This reflects a deeper signal: if the Bank of Japan truly accelerates hikes, money will rotate from equities into bonds, and the rebalancing between Japanese stocks and JGBs could deepen further.
The old "long Japanese stocks, short JGBs" playbook may fail on both legs: bonds are no longer cheap, and stocks no longer hold a monopoly on capital.
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