Japanese Corporate Pensions Accelerate Shift Back to Domestic Bonds, Allocation Appetite Strongest Since 2008
nashnova research
Japanese corporate pensions' intent to add domestic bonds has hit its highest since 2008. The 10-year JGB yield touching 3% means pensions can meet return targets without equities — a multi-year under-allocation is reversing.
Why are pensions suddenly buying domestic bonds again?
J.P. Morgan Asset Management (Japan) surveyed 82 defined-benefit pension managers. In April–June, the net share planning to increase domestic bond holdings reached 8.6 percentage points — the highest since 2008.
The driver: Japan's 10-year government bond yield hit 3% intraday, a level not seen in nearly three decades.
This means → pension return targets typically sit at 2%–3%. At current yields, JGBs alone can meet that hurdle — no need to take equity risk.
Where has pension money been going for the past decade?
Domestic bonds' share of pension portfolios has fallen steadily: 38% in 2010 → 30% in 2015 → 19% in 2020.
In plain terms = rates were too low for domestic bonds to earn their keep, so pensions shifted into foreign bonds and alternatives — infrastructure funds, real estate, and similar non-traditional assets.
Now that rates are climbing back, the money is following. 62% of respondents said they are considering replacing or newly hiring domestic bond managers — a sign that the shift goes beyond adding positions to rethinking the entire management structure.
What role do life insurers' general accounts play?
General accounts — pooled funds where insurers promise a fixed return — make up over 10% of pension policy portfolios. Their underlying assets are mostly domestic bonds.
This means → pension money flows into domestic bonds both directly and indirectly through general accounts. The two channels combined suggest sustained inflows ahead.
Has the long decline in assumed return rates finally bottomed?
In the FY2026 survey, 37% of respondents set assumed returns at 2%–2.5% and 51% at 2.5%–3%, with an average of 2.28% — breaking a prolonged downtrend.
8% have already raised their assumed return rate; another 5% are considering doing so.
J.P. Morgan investment specialist Akira Kunikyo noted: as domestic inflation in Japan normalizes, more pensions may negotiate higher targets with their sponsoring companies to prevent real purchasing power from eroding.
Don't rising rates also push bond prices down?
The concern is real — it is a basic bond property: when rates rise, prices fall.
But Kunikyo pointed out that interest in "hold-to-maturity" strategies — buying bonds and holding them until they mature, collecting principal plus coupons — is rising in parallel. This sidesteps price volatility entirely.
New positions in corporate bonds — which carry higher yields than JGBs — also increased in FY2025. This reflects pensions pursuing better coupon income while using a hold strategy to manage interest-rate risk.
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