Since Korea was added to the "FTSE World Government Bond Index (WGBI)" in early Apr., Japan's holdings of Korean Government Bonds have risen to $4.87 billion in two months. That is nearly 10 times the level a year earlier, compared with late May last year ($520 million). Japan, which had bought little Korean Government Bonds, has sharply increased its investment. The FTSE World Government Bond Index is one of the world's three major government bond indexes and serves as a reference when countries buy other countries' Government Bonds.
The basic reason Japanese funds are flowing into Korean Government Bonds is that Japan tends to invest by tracking the WGBI. FTSE RUSSELL, which created the WGBI index, said in a WGBI performance report released in Apr., "WGBI is widely used in Japan as the 'standard benchmark for foreign bond investment.'"
In fact, Japanese funds such as the public pension (GPIF), which corresponds to Korea's National Pension Service, prefer investing according to the WGBI. As Korean Government Bonds were included in the WGBI, Japanese pension funds have come to buy them above a certain level.
The asset size of Japan's public pension was 260 trillion yen as of late June last year. Of that, 25% must be invested in overseas bonds. A simple calculation puts 65 trillion yen (about 620 trillion won) as invested according to global bond indexes such as the WGBI. Accordingly, more Japanese funds could flow into Korean Government Bonds going forward, some analysts say.
Before being added to the WGBI, the Korean government held investor briefings for Japanese investors. In 2024, it visited Tokyo and held investor relations (IR) sessions over two days for major Japanese pension funds. In Apr., after inclusion in the WGBI, it also held an investor briefing in Tokyo. A Government Bond market official said, "Because Japan has a strong tendency to invest based on the WGBI, the government conducted investor outreach through briefings before and after the WGBI inclusion."