For how long will Japan’s households support bonds and the yen?
Households’ financial surpluses sharply increased in 2020 and remained high in 2021 due to the Covid pandemic. Most of the surplus continued to go to cash and deposits, but there was a notable increase in funds going to investment trusts (with a large portion invested in foreign equities) in 2021.
Amid rising international yield differentials and a weakening yen, there is market chatter about whether this is the beginning of a structural shift from households’ risk-averse investment style?
What you will learn:
- We believe the sharp rise in 2021 was temporary, driven by the strong performance of US equities and the dollar.
- But Japan’s households will likely continue to increase their foreign portfolio investment in the long term, albeit at a very gradual pace.
- Given the sheer size of household wealth, such a shift will have a profound impact on the yen and the Japanese government bonds (JGBs) market.
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