Japan's perennially low yields will keep the country's conservative bond investors lusting after Australia's safe and stable bonds, analysts said.
"Japanese investment into overseas bond markets like Australia is set to accelerate as the diversification away from low-yielding Japanese Government Bonds (JGBs) continues," said HSBC Head of Global Emerging Market Rates Research Andre de Silva in a note published last week. "All else equal, a sustained appetite for Australian bonds from Japanese investors can lead to up to $63 billion of inflows into Australia over the next two to three years," he said.
Interest rates in Japan have been on a relentless slide for twenty years, with the benchmark 10-year JGB yielding just 0.388 percent, and Japanese investors, both institutional and retail, are old hands at investing in Australia.
The quest for yield may become more urgent: since the Bank of Japan launched an unprecedented bond purchase program in the spring of 2013, the benchmark 10-year JGB bond yield has fallen from 0.559 percent to touch an all-time low of 0.207 percent this January after a second round of quantitative easing last October.