GPIF may consider increasing domestic bond allocation as Japanese bond yields climb to nearly 3%, attracting investors' attention

(1) Japan's government bond yields have risen significantly recently, with the benchmark 10-year yield once approaching the 3% 30-year high. The Government Pension Investment Fund (GPIF) has recorded losses in domestic bond investments for seven consecutive quarters, mainly due to rising yields depressing bond prices. (2) Analysts believe that the rise in yields has improved the expected returns of domestic bonds, so it is reasonable for GPIF to consider increasing the current 25% domestic bond allocation target. A senior researcher at Dai-ichi Life Research Institute said that after evaluating expected returns and risks, "raising the ratio to 30% to 35% is worth considering." (3) As of the end of June, GPIF managed assets of about 318 trillion yen (about $2 trillion). In theory, every 1 percentage point adjustment in allocation could correspond to more than 3 trillion yen in capital flows, which would have a significant impact on the bond market.