Rakuten Securities
楽天証券Brokerage (NISA/iDeCo) · Rakuten Securities
- Fees
- Varies
- English
- Partial
A leading low-cost brokerage for NISA and index-fund investing, integrated with Rakuten points and Rakuten Bank.
Bond funds for Japan-based investors
Japanese vs foreign bonds, government vs corporate, duration and credit, currency hedging, and bond funds vs individual JGBs.
Direct answers
Bond funds hold many bonds for income and relative stability; key choices are Japanese vs foreign, government vs corporate, duration, credit quality, and — for foreign bonds — whether to hedge currency, which often dominates their yen returns.
Key points
- Bonds add income and can cushion equity volatility, but they are not risk-free.
- Duration measures interest-rate sensitivity; longer duration = bigger price swings when rates move.
- Credit quality ranges from government to corporate; lower quality adds default risk.
- For foreign bond funds, currency swings can dominate returns — hedging is often more compelling here.
- A diversified bond fund differs from a single JGB: it fluctuates in price but spreads issuers and maturities.
Types, duration, and credit
Bond funds pool many bonds and pay income. The main dimensions are geography (Japanese vs foreign), issuer type (government vs corporate), duration, and credit quality. Duration measures how much the price moves when interest rates change: a longer-duration fund is more sensitive, gaining more when rates fall and losing more when they rise. Credit quality ranges from safe government bonds to higher-yielding corporate bonds that carry default risk.
Bonds are held mainly for income and to cushion equity volatility, but they still carry interest-rate, credit, and (for foreign bonds) currency risk. A bond fund is not a cash substitute — its price fluctuates.
Hedging and bond funds vs JGBs
For foreign bond funds, currency matters more than for equities. Because bond returns are modest, a large yen exchange-rate move can dominate the result. If your reason for holding foreign bonds is yen stability, an unhedged version can defeat the purpose, so a currency-hedged version is often more consistent with the goal — at a hedging cost tied to interest-rate differentials.
A diversified bond fund differs from a single retail JGB: the JGB has government-backed principal and no price volatility if held to maturity, but a fund spreads across many issuers and maturities, fluctuates in price, and may include longer-duration or foreign bonds. Use a fund for diversified bond exposure and JGBs for government-safe, hold-to-maturity stability.
Who this is for
- Investors adding bonds to cushion equity risk
- People choosing hedged vs unhedged bonds
What this is not
- Anyone treating bond funds as cash
- Readers wanting specific fund picks
Important cautions
- Bond funds fluctuate in price and can lose money; unhedged foreign bond funds carry large currency risk.
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Frequently asked questions
What should a beginner invest in inside NISA?
This is education, not a recommendation. Most beginners research low-cost, broadly diversified index funds — for example all-country (全世界株式) or S&P 500 trackers — rather than picking individual stocks, because low fees and diversification are within your control while returns are not. Understand that values fall as well as rise, match the risk to your time horizon, and never invest money you may need soon.