Key Facts
• In 2025, 10-year Japanese government bond yields rose from about 1.1% to 2.1%, a 27-year high.
• The Bank of Japan’s (BOJ) bond holdings fell from 53.9% in September 2023 to 50.0% by September 2025.
• From Q3 2024 to Q3 2025, government net bond issuance totaled 35 trillion yen; BOJ reduced holdings by 26 trillion yen.
• Other buyers filled the 62 trillion yen gap: deposit-taking institutions (+22 trillion yen), foreign investors (+14 trillion yen), public pensions (+8 trillion yen), households (+4 trillion yen).
• Household holdings of Japanese government bonds remain below 1% of total household assets, indicating large growth potential.
• Individual government bonds (IGBs) are the main form of household bond ownership, issued monthly in 3-, 5-, and 10-year maturities.
• IGBs offer principal guarantee, semiannual interest payments, and allow redemption anytime after one year.
• January 2025 IGB interest rates (pre-tax): 3-year fixed 1.10%, 5-year fixed 1.35%, 10-year variable 1.23%.
• Bank time deposit rates for similar terms are significantly lower (around 0.3% to 0.5%).
• Sales of 3- and 5-year fixed IGBs increased in 2024; 10-year variable IGB sales declined due to lower relative interest rates.
• The 10-year variable IGB rate is set at 66% of market yields, about 0.7% below current market yields, reducing attractiveness.
• Proposed measures to boost household demand include adding IGBs to the NISA tax-exempt scheme, improving product features, and expanding product lineup.
• Suggested new products include 5-year variable, 10-year fixed, and 30-year variable bonds with early redemption options.
• Nearly half of households avoid riskier financial products, making IGBs a stable, non-volatile investment alternative.
• Expanding household IGB holdings can stabilize bond absorption and mitigate sharp yield fluctuations.
Summary
In 2025, Japanese government bond yields surged amid BOJ’s gradual withdrawal from bond purchases and fiscal expansion expectations. The BOJ’s share of bond holdings declined from 53.9% to 50.0%, with deposit-taking institutions, foreign investors, public pensions, and households compensating for the reduced BOJ demand. Households currently hold less than 1% of their assets in government bonds, mainly through individual government bonds (IGBs), which provide principal protection and flexible redemption after one year. Despite rising interest rates, the 10-year variable IGB has seen declining sales due to its relatively low yield, set at 66% of market rates. To enhance household participation and ensure stable bond absorption, proposals include tax incentives via NISA inclusion, improving IGB interest rate settings, and diversifying product offerings with longer maturities and early redemption features. Given many households’ aversion to riskier assets, expanding IGB options offers a safer investment path, benefiting both households and government by stabilizing bond markets and curbing yield volatility.
