The yield on Japan's 10-year government bonds has risen significantly above the dividend yield of stocks, leading to expectations that capital may flow from equities to bonds once volatility in the bond market subsides. Data shows the dividend yield of the Topix index components is currently around 2.3%, lower than the composite yield of 2.75% for 10-year Japanese government bonds. This gap is the widest since the Bank of Japan implemented tightening policies in 2007.
"The appeal of bonds is gradually surpassing that of stocks from the perspective of dividend yield and earnings yield," stated Hiroshi Namioka, chief strategist at T&D Asset Management. He added, "Once oil prices begin to stabilize, bond purchases are likely to increase."
Oil prices have continued to rise amid heightened pressure from U.S. President Trump on Iran to end conflicts, fueling concerns over inflation and intensifying a global bond sell-off. On Monday, Japanese government bond prices fell further, with the yield on 30-year Japanese bonds surging 20 basis points to its highest level since the issuance of that maturity in 1999. This pushed yields on 10-year and 20-year Japanese bonds up by about 10 basis points each, reaching their highest levels since 1996.
Simultaneously, the yield on 30-year U.S. Treasury bonds briefly rose 4 basis points to 5.16%, marking the highest level since October 2023. Yields on 10-year and 2-year U.S. Treasuries reached 4.63% and 4.10%, respectively, both hitting their highest levels since February 2025. Bond prices in Australia and New Zealand also declined.
Higher yields increase risks for stocks, particularly as growth-oriented equities, which are sensitive to bond yields, have driven the recent rally in Japanese markets. However, Sohei Takeuchi, senior fund manager at Sumitomo Mitsui DS Asset Management, noted that stocks may still retain their appeal as Japan enters a phase of nominal economic expansion driven by inflation. He believes a large-scale shift of capital from stocks to bonds is unlikely unless Japanese government bond yields rise to levels comparable with U.S. Treasuries.
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