By Makiko Yamazaki and Junko Fujita
TOKYO, Dec 22 (Reuters) – Japan is looking to the country’s $7 trillion household savings hoard to support bond demand with plans to launch new products and incentives, building on hot recent retail sales and filling a void left by diminished central bank buying.
Efforts to attract Japanese households are not new — in 2010, the finance ministry created a mascot Kokusai-sensei, or Professor JGB, to pitch the securities and later even offered gold coins to buyers of special reconstruction bonds.
But where mascots and shiny metals struggled, higher yields have succeeded in drawing in buyers this year. Retail Japanese government bond (JGB) sales jumped 30.5% in 2025 to 5.28 trillion yen ($33.55 billion), the highest since 2007.
Enthused by strong momentum, at a meeting with more than a dozen institutional investors in late November, the finance ministry faced calls to step up efforts to attract retail buyers, minutes of the meeting released by the ministry showed.
Broadening the investor base for JGBs has become critical for market stability as Prime Minister Sanae Takaichi’s reflationary policies fuel concerns about the government’s plans to borrow and spend.
‘FINDING NEW INVESTORS’
Japan’s 10-year government bond yield jumped past the 2% ceiling for the first time in 26 years on Friday after the Bank of Japan (BOJ) raised interest rates to a three-decade high and signalled more policy tightening.
Households are seen as a key source of new demand as the BOJ scales back its buying and commercial banks face limits to their bond-buying firepower from capital rules that curb interest rate risk.
With retail JGBs yielding even less than the type sold to banks, the securities have historically been a tough sell.
Domestic households own less than 2% of the 1.06 quadrillion yen in outstanding JGBs, and about half of Japan’s 2.20 quadrillion yen in household financial assets sit in cash or low-yield deposits.
“When it comes to finding new investors, we believe there is room for expansion among individuals,” said one participant of the finance ministry’s meeting, according to minutes that did not name the speakers.
“As overseas investors cannot be relied upon as stable holders, we should consider product designs that encourage ownership by individual investors, such as increasing offerings like investment trusts for 30-year bonds,” another said.
‘HIGHER YIELDS’
Daiwa Asset Management and Amova Asset Management in recent months launched investment trusts focused on 30-year JGBs, targeting domestic retail bond investors for the first time.
Amova started thinking about crafting the trust when the 30-year JGB yield hit 3%, said Takuya Kanazawa, a senior vice president at the firm’s product development department. The yield exceeded 3% for the first time in May and climbed to a fresh record of 3.445% on Monday.
“The 3% yield is high enough to beat inflation,” said Kanazawa.
“When retail investors think about investing in high-yield debt, it tended to be U.S. or Australian bonds, but those always carry the currency risks,” he added. “With this fund, they can enjoy higher yields without such risks.”
NUCB Business School professor Nana Otsuki, who attended the finance ministry’s meeting with investors, said that household ownership of JGBs could potentially rise to 5%-6% if the product design is revamped.
“Having people hold government bonds would be a meaningful step forward as it could fuel a sense of responsibility among them over what the Takaichi administration calls responsible proactive fiscal policy,” she said.
With regard to the investors’ proposals, a senior finance ministry official told Reuters the government was preparing to expand the target market for retail JGB sales from January 2027 to include non-profit corporations and unlisted companies.
The ministry is also gathering opinions for other potential measures, said the official.
The University of Tokyo’s Center for Applied Capital Markets Research, where Otsuki serves as a fellow, this month urged the government to overhaul retail JGB products to make them more attractive.
Proposed steps include making retail JGBs eligible under NISA tax-free investment accounts and revising the coupon-setting formula, which currently applies a discount to benchmark yields in exchange for principal protection.
Takahiro Otsuka, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities, said Japan could look to the case of Italy, which has boosted retail bond sales through incentives such as higher coupons as a reward for holding bonds for longer.
“That said, this is essentially the same as offering a tax break, raising the question of how to weigh that trade-off,” Otsuka said.
($1 = 157.3600 yen)
(Reporting by Makiko Yamazaki, Junko Fujita, and Rocky Swift; Editing by Sumeet Chatterjee and Sam Holmes)
