Interest rate hike cycle begins, Japanese government bonds become a new favorite for household financial management: Retail sales reach an 18-year record.

As the Bank of Japan initiates policy tightening, rising interest rates are prompting household funds to flow from bank deposits to the government bond market. This year, sales of government bonds targeted at individual investors in Japan have surpassed 5 trillion yen (approximately $32 billion), reaching the highest record since 2007. According to data from the Japanese Ministry of Finance, the cumulative issuance of government bonds from January to December reached 52.8 trillion yen. Among them, the five-year retail government bond issued in November had a face interest rate of 1.22%, nearly 2.7 times the rate of 0.46% from the same period last year. With the gradual reduction of the massive bond-buying program under the ultra-loose monetary policy by the central bank, household investors are actively participating in the government bond market. The higher yield and nearly risk-free safety are revitalizing the demand for government bonds. Of note this year is the issuance of approximately 1.9 trillion yen of ten-year floating rate government bonds. These bonds have a dynamic adjustment of face interest rates with the overall market interest rate trend, posing unique allocation value in a period of monetary policy tightening. Kyoko Takahata, a 37-year-old housewife from Okayama Prefecture, stated that she withdrew her savings from the bank last October and purchased the ten-year floating rate government bond at a local branch. "The government bond interest rate is higher than the deposit interest rate, and the principal is guaranteed. The floating interest calculation method makes me feel that the returns will gradually increase over time," she admitted. "I know that this return may not outpace inflation, but the stock market is too volatile and can easily lead to losses." Takahata added that buying government bonds is a more secure way to save for her children's education and retirement. For example, even for a ten-year fixed-term deposit of over 10 million yen at Mizuho Bank, the interest rate is only about 0.5%, explaining indirectly why some depositors are choosing to shift their funds to government bond products with significantly higher returns. According to the latest issuance arrangements, the face interest rates for retail government bonds settled in January next year have been determined: 1.1% for three-year fixed-rate bonds, 1.35% for five-year fixed-rate bonds, and 1.23% for ten-year floating-rate bonds. Among them, the five-year rate hit a new high since 2007, while the ten-year floating rate set a record high since its introduction in 2003. The final issuance size of retail government bonds will be determined based on the cumulative subscription amounts from individual investors.