Deutsche Bank: Adjustment in Norwegian Sovereign Wealth Fund Strategy May Make Japanese Government Bonds the Biggest Beneficiary

(1) Deutsche Bank pointed out that Norway’s sovereign wealth fund, with a scale of $2.2 trillion, has proposed adjusting its investment strategy, which may lead to a significant increase in its allocation to Japanese government bonds. (2) The fund acknowledges that sovereign debt is no longer considered a risk-free asset, and is therefore shifting its US fixed income allocation from US Treasuries to non-sovereign assets, while substantially increasing its holdings of Japanese government bonds. The rationale is that the Japanese market is large, and it is reducing the importance of “debt-to-GDP ratio” as a key metric for market allocation. (3) Although the amount involved is relatively small compared to the global fixed income market, as one of the world’s largest and most successful sovereign wealth funds, its strategic changes strongly indicate that global capital flows and portfolio allocations are slowly but steadily shifting, and this tilt means that the biggest beneficiaries will be the yen and Japan.