FX Blog Guess who is buying Japan

Foreign Exchange Date 4 September 2026 FX Blog

Guess who is buying Japan Shreyas Gopal Earlier this week, Norway’s $2.2 trillion wealth fund (NBIM) proposed one of the Strategist most important changes to its investment strategy since the fund was created more than three decades ago. In this report, we analyse how these changes are likely to, on net, result in a notable reduction in ownership of US Treasuries and a George Saravelos Strategist significant increase in allocation to Japanese government bonds.

We explain the changes in more detail below. While the sums involved are small relative to the size of global fixed income markets, we believe the change in the investment strategy of one of the world’s largest and most successful sovereign wealth funds offers powerful signals as to the slow-moving, but persistent shifts in global capital flows and portfolio allocation currently taking place in markets. We have been writing about these themes for a while. To summarize the two biggest changes:

• Norway is shifting its US fixed income allocation away from Treasuries and towards private fixed income securities, reflecting the broader shift in the financing of the US current account deficit away from government bonds to “riskier” securities (see here). Norway now explicitly acknowledges that sovereign bonds are no longer riskless; we have been writing about this dynamic perhaps being reflected in the negative correlation between US term premium and the US dollar (see here).

• Norway is making a large shift towards Japanese government bonds, acknowledging the large size of the market and de-emphasizing the importance of debt/GDP as a market allocation metric. The potential for large domestic allocations to Japan has been a persistent theme of our research in recent years (see here), and Norway highlights the possible large foreign allocations as well. We have long been de-emphasizing the importance debt/GDP as a driver of Japanese markets (see here), and the Norwegian shift confirms that this de-emphasis is taking place by asset allocators as well.

In sum, Norway’s changes likely reflect of two key medium-term shifts taking place in global markets: a re-appraisal of sovereign risk, especially in the US, and a trend towards seeking asset diversification, which has the potential to materially favour the JPY.

The changes in allocation in detail

For context, the fund invests entirely in foreign assets, unhedged. It currently invests just over 70% in global equities, just over 25% in fixed income, and the rest in real estate and renewable energy.

Deutsche Bank AG IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.

Figure 1: Norwegian wealth fund holds close to $600bn of (DM) fixed income assets

Source: Deutsche Bank Research, NBIM, Norges Bank

These proposals do not affect this broad split between equites and other asset classes. Instead, the proposals affect the benchmark bond index that the fixed income portion of the wealth fund broadly tracks. As it stands, the benchmark bond fund is split 70% government bonds and 30% corporate bonds, all DM only.

Two main changes are proposed:

(A) Reweight the benchmark bond index from 70/30 government/corporate to 50/50 government/corporate.

In turn, three broad reasons have been given for this reweighting between government and corporate bonds.

(1) Liquidity: The fund already has more than sufficient government bond holdings to satisfy its liquidity needs in the event of market stress.

(2) Corporate bonds offer similar portfolio diversification (vol-reducing) benefits as government bonds during normal times but offer higher yield. As a long-term investor, NBIM can harvest this risk premium by investing more in corporate bonds.

(3) Most interesting, while government bonds have benefitted from a flight to safety during previous crises (while corporate bonds behave more like equities), this cannot always be expected to be the case. The letter notes that “The degree to which bonds will contribute to dampening volatility in future crises, will depend on the…