The medium-term outlook for Japanese government bonds remains firm, with strategists showing a bullish stance.

Latest market analysis by Morgan Stanley MUFG strategists is attracting attention. Koichi Sugisaki and Hiroshi Kamisato continue to hold a positive outlook on the medium-term zone of the Japanese government bond yield curve, and investors are increasingly paying attention to future market trends.

Impact of Changes in the US Economy

Both analysts point out that if there are fluctuations in the US economic situation, the risk of downward revision of the Bank of Japan’s terminal rate (the final benchmark interest rate applied when financial institutions lend funds) could increase. If this scenario materializes, it could have ripple effects across the entire Japanese government bond market.

Despite Improvements in Fiscal Environment

Although there are signs of improvement in fiscal issues under the new administration, strategists remain cautious about the long-term government bond segment. This conflicting view is rooted in a deep understanding of structural changes in the market.

Insurance Companies’ Investment Demand is Key

A survey of the investment plans of Japan’s top 10 life insurance companies for the second half of FY2025 revealed that demand for ultra-long-term government bonds is expected to be limited. This decline in demand could significantly impact the overall balance sheet of the government bond market.

Market participants are increasingly revising their investment strategies based on these analyses.