Asked by Anonymous
Updated on 18 Apr 2019
When Japanese investors invest in bonds overseas (e.g US), they'll apply currency hedging (to reduce foreign exchange risk). As a result, there will be additional premium for investing. The rising hedging cost renders it unviable to invest in US bonds since net returns would be higher when investing locally.
Why the low yield
This results in Japanese investors to pull their money back to domestic markets. When demand increases, price of bond will increase and bond yield will decrease.