Japanese asset management companies, including the investment units of Mizuho Financial Group and Nomura Holdings, are accelerating efforts to secure international mandates for bond funds. This strategic push is fueled by a significant increase in global demand for Japanese debt, which has become more appealing due to rising interest rates offering attractive yields for the first time in decades. As Japanese corporations increasingly utilize bond issuance as a primary source of growth financing, the domestic market is expanding. Asset managers are now leveraging their specialized knowledge of the corporate bond sector to attract foreign capital, as overseas investors gradually increase their allocations to yen-denominated instruments.
A tangible example of this trend emerged when Asset Management One (AMO), the asset management arm of Mizuho Financial Group, secured its first mandate to manage funds for a Western institutional investor. The agreement remains undisclosed, and AMO declined to provide comment. AMO, which also holds a partial ownership stake in life insurer Daiichi Life, previously launched an actively managed yen bond fund for foreign investors in February, marking its first such initiative in approximately 30 years. This development coincides with a broader uptick in overseas investment in yen-denominated bonds following the Bank of Japan's initiation of policy normalization in 2024, a move that has allowed bond yields to trend upward.
Takeshi Miki, a senior executive officer and head of the institutional investor fiduciary management department at AMO, highlighted the strategic rationale behind this focus. He noted that attracting investors to global equity strategies is particularly challenging for lesser-known asset managers in the Far East. Consequently, the firm decided to leverage its unique value proposition derived from Japan's domestic market. Over the last two years, AMO has restructured its global sales division to prioritize its yen bond offering, shifting away from its previous emphasis on equities. This restructuring was designed to strengthen the firm's capabilities in the fixed income sector.
Nomura Holdings' asset management division is also actively expanding its bond product lineup. The firm is launching an actively managed bond fund that incorporates Japanese Government Bonds (JGBs) alongside corporate bonds. Yuji Ishida, head of client portfolio management at Nomura Asset Management in Tokyo, stated that the firm expects to secure a management mandate from an overseas institutional investor. To support this initiative, Nomura has hired Richard Hastings, formerly of Goldman Sachs Asset Management, as a client portfolio manager. This hire aims to bolster fixed income sales and broaden the firm's product offerings. Ishida expressed confidence in the yen bond sector, identifying it as the firm's largest growth area. He anticipates that foreign investors will transition from an underweight position to neutral or overweight allocations in yen bonds.
Foreign asset managers are also adjusting their portfolios in response to the changing landscape. French asset manager Amundi shifted to a neutral-slightly overweight position on Japanese bonds in its global portfolio in February, the first time it had done so in decades. However, subsequent concerns regarding inflation risks, stemming from conflict in the Middle East and uncertainty surrounding Japan's fiscal position, along with expectations of further interest rate hikes, prompted a shift to a slightly underweight stance. Shinichiro Arie, managing director and co-head of the fixed-income department at Amundi Japan, stated that the firm is currently adopting a wait-and-see approach due to the ongoing uptrend in interest rates. However, Arie noted that the current rally is expected to run its course, and the firm is assessing the optimal timing for market entry.
Other investors are exploring carry trade strategies that involve holding corporate bonds to maturity. Tetsuji Hayashi, a product specialist at Sumitomo Mitsui DS Asset Management, reported that investors are inquiring about potential yields over a three-year holding period and requesting model portfolio constructions. Hayashi explained that A-rated corporate bonds offer a stable spread of approximately 50 to 60 basis points over JGBs. This structure allows investors to benefit from both the fixed spread and the yield on JGBs. Furthermore, as the yen depreciates, currency hedging mechanisms enhance returns for overseas investors.
Corporate bonds serve as a key differentiator for domestic asset managers, as Miki pointed out that many competitors lack the expertise to analyze Japanese companies' debt. This advantage is reinforced by the deepening market, as Japanese firms increasingly turn to bonds for growth financing. BlackRock, which has actively managed Japanese bond portfolios since 2006, launched the world's first yen-denominated active corporate bond ETF earlier this year. The product is primarily targeted at domestic financial institutions and individual investors. Hiroshi Watanabe, managing director at BlackRock Japan, explained that the launch was intended to stimulate demand from both retail and institutional investors. Improved liquidity resulting from this activity is expected to facilitate greater participation from foreign investors.