In 2025, U.S. tariff policies trigger a capital shift: Foreign capital flows into Japanese government bonds, while the Japanese insurance industry sells off against the trend.

In March 2025, Trump administration's tariff policy caused global market fluctuations, leading international funds to pour into Japanese government bonds for safety. That month, foreign investors net bought over 10-year Japanese government bonds totaling 2.18 trillion yen, an all-time high. At the same time, Japanese insurance companies sold 645.8 billion yen of long-term government bonds due to asset adjustments ahead of the fiscal year-end. The yield on 30-year Japanese government bonds climbed to its highest point since 2006, highlighting shifts in market supply and demand and the contrasting reactions to market risk between foreign investors and domestic institutions.

U.S. Tariff Policy Triggers Market Shift Towards Safe-Haven Assets

In March 2025, the Trump administration announced a 25% tariff on automobiles and their components, and on April 2, further pushed for a broad reciprocal tariff policy. This series of measures caused global market turmoil, causing investor concerns about the U.S. economic outlook, triggering a sell-off in U.S. Treasury bonds. The yield on the U.S. 10-year Treasury bond surged from 3.86% to 4.59% within a week in early April, marking the largest weekly increase in 20 years.

Against this backdrop, investors began seeking other safe-haven assets. Japanese government bonds, due to their stability and the yen's safe-haven attributes, became a preferred choice for foreign investors. Data released by the Japan Securities Dealers Association showed that in March, foreign investors net purchased a total of 6.03 trillion yen in Japanese government bonds of all maturities, the second-highest monthly record since 2004, with net purchases of long-term and super-long-term bonds over 10 years reaching 2.18 trillion yen, a historical high.

Japanese Insurance Companies Buck the Trend: Massive Sell-off of Long-term Bonds

In stark contrast to the active buying by foreign investors, Japanese domestic insurance companies chose to reduce their long-term bond positions during the same period. According to data compiled by Bloomberg, in March, Japanese insurance companies sold a total of 645.8 billion yen in long-term and super-long-term Japanese government bonds, setting a record for the largest monthly sell-off.

This strategy is closely related to the end of Japan's fiscal year (end of March). Shoaki Omori, chief trading strategist at Mizuho Securities in Tokyo, pointed out that March is a critical time for Japanese companies to adjust their balance sheets. Coupled with rising U.S. long-term interest rates and the Bank of Japan reducing bond purchases, market demand was insufficient, dampening insurance companies' willingness to hold long-term bonds.

Although the yields on 30-year and 40-year bonds have reached attractive levels, many insurance companies remain cautious. Daido Life Insurance stated that although the yields are attractive, the bond market has not yet stabilized. Taiyo Life Insurance plans to maintain its level of Japanese government bond holdings in the new fiscal year (starting in April) comparable to last year. Fukoku Life Insurance announced it would increase its holdings of Japanese super-long-term bonds by 30 to 40 billion yen and is considering reducing its positions in U.S. and other foreign bonds.

Yield Surge: 30-Year Bonds Hit 20-Year High

Due to the combined effects of capital flows and market supply-demand changes, the yield on Japan's 30-year government bonds experienced significant volatility. In mid-March, the yield briefly rose to 2.63%, the highest level since 2006. On April 7, the yield temporarily fell to 2.195% but quickly rebounded, climbing to 2.845% in mid-April, reaching a 20-year high.

The rise in yields reflects a weakening demand for long-term bonds, especially against the backdrop of the Bank of Japan reducing its purchases of long-term bonds. This change has also made some investors more conservative in their willingness to invest in super-long-term bonds. Shoaki Omori noted, "Few buyers, coupled with rising U.S. long-term interest rates and rates over 10 years, may dampen active investment willingness."

Divergence Between Foreign and Domestic Institutions: Balance Between Hedging and Rebalancing

The investment strategies of foreign investors and Japanese insurance companies in March were completely different, reflecting different interpretations of market risks. Foreign investors, driven by U.S. policy uncertainty and hedging needs, shifted funds to Japanese government bonds; while domestic insurance companies, based on fiscal year-end asset allocation needs and concerns about market volatility, chose to reduce long-term bond positions.

This divergence is also reflected in asset allocation strategies. Junya Morizane, head of the investment department at Fukoku Life Insurance, stated, "Yields have reached our investment expectation levels, so we will rebalance our bond investment portfolio and actively increase our holdings."

References

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