The Investor Confidence Paradox: Why Markets Bet on Aging Japan Over Dynamic China

Chinese 30-year bonds now yield less than Japanese ones for the first time in decades – how institutional reform trumps GDP growth

• Bond investors are betting on Japan’s long-term growth prospects over China’s for the first time in decades, with Japanese 30-year yields now 87 basis points higher than Chinese yields

• The Tokyo Stock Exchange’s reforms have triggered record share buybacks of 9.6 trillion yen ($65 billion) in 2023 as companies scramble to improve capital efficiency

• China’s fiscal revenues are likely to decline in 2025 even if it meets growth targets, while running a 12% fiscal deficit amid persistent deflation

• Half of new Japanese tax-free investment account (NISA) money has flowed into domestic equities, reversing decades of home bias against local markets

Something extraordinary is happening in global bond markets. Chinese 30-year government bonds now yield less than their Japanese equivalents – a reversal that would have been unthinkable just years ago.

On the surface, this doesn’t make much sense. Why would the world’s fastest-growing major economy offer investors lower returns than an aging society that has barely grown in over three decades?