In view of the wider interest, we are resending this publication to include clients of our Global Markets Service. We apologise to readers of our Japan Economics Service who are receiving it twice.
With unhedged yield gaps still very much in favour of overseas bonds and hedged returns set to improve as overseas central banks slash borrowing costs, Japanese investors won’t respond to higher JGB yields by repatriating capital. And while we expect Japan’s current account surplus to remain large, its shrinking size relative to other advanced economies coupled with a shift in capital outflows towards net foreign direct investment means its importance in global bond markets will continue to dwindle.
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