Key Takeaways
- • Japanese defined-benefit pension funds plan to increase domestic bond allocations, with 10% of 82 surveyed funds planning increases, the highest share since the survey began in 2008, according to a J.P. Morgan Asset Management (JPMAM) survey conducted April to June.
- • Overall allocation to Japanese bonds was essentially flat year-on-year at 14.3%, signaling a shift in planned direction rather than an immediate reallocation.
- • 62% of surveyed funds are reviewing their domestic bond manager structure, with buy-and-hold strategies cited among the top three approaches by 73% of respondents.
- • Planned increases to global bond allocations fell to 29.5% from 30% a year earlier, with high currency hedging costs cited as the primary driver.
- • JPMAM Japan CEO Kaguya Komatsu said pensions are returning to domestic bonds "in a new form" as the BOJ's rate-hike cycle accelerates, and called for a holistic portfolio view.
Summary
Japan's defined-benefit pension funds are looking to raise their allocations to domestic government and corporate bonds in anticipation that the Bank of Japan will accelerate its rate-hiking momentum, according to a survey released by J.P. Morgan Asset Management on September 2. The survey, conducted between April and June, polled 82 Japanese defined-benefit pension funds on changes to their investment policies.
Despite the intended shift, the overall allocation to Japanese bonds remained largely unchanged year-on-year at 14.3%. However, the proportion of respondents planning to increase their domestic bond holdings reached 10%, the highest level recorded since the survey's inception in 2008. JPMAM says the funds are strategically returning to the domestic market while leveraging general accounts and buy-and-hold strategies to secure stable yields and manage interest rate risk amid the BOJ's ongoing rate cycle.
The survey also found that 62% of respondents are reviewing their manager structure for domestic bonds. Buy-and-hold strategies are emerging as the primary approach under review, cited among the top three strategies by 73% of respondents.
By contrast, the share of respondents planning to increase allocations to global bonds declined to 29.5% from 30% last year, primarily due to high hedging costs.
Kaguya Komatsu, chief executive officer of JPMAM Japan, said that "as the BOJ's rate hike cycle accelerates, defined-benefit pensions are returning to the domestic bond market in a new form." She added that a holistic view of the overall portfolio will become increasingly important, encompassing effective use of domestic bonds, careful management of currency hedging costs, and selective allocation across alternative strategies.
Despite the intended shift, the overall allocation to Japanese bonds remained largely unchanged year-on-year at 14.3%. However, the proportion of respondents planning to increase their domestic bond holdings reached 10%, the highest level recorded since the survey's inception in 2008. JPMAM says the funds are strategically returning to the domestic market while leveraging general accounts and buy-and-hold strategies to secure stable yields and manage interest rate risk amid the BOJ's ongoing rate cycle.
The survey also found that 62% of respondents are reviewing their manager structure for domestic bonds. Buy-and-hold strategies are emerging as the primary approach under review, cited among the top three strategies by 73% of respondents.
By contrast, the share of respondents planning to increase allocations to global bonds declined to 29.5% from 30% last year, primarily due to high hedging costs.
Kaguya Komatsu, chief executive officer of JPMAM Japan, said that "as the BOJ's rate hike cycle accelerates, defined-benefit pensions are returning to the domestic bond market in a new form." She added that a holistic view of the overall portfolio will become increasingly important, encompassing effective use of domestic bonds, careful management of currency hedging costs, and selective allocation across alternative strategies.
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