Central bank losing market share

What’s clear is that ultra-low interest rates can spur huge outflows to foreign markets. But even more telling is the extremes that Japanese investors have gone to in the hunt for yield. They’ve pushed deeper into stocks and real estate, amassed bonds from Europe’s periphery to emerging markets, and loaded up on opaque securities that bundle together hundreds of loans.

As the quest for returns gets more desperate each year, popular trades become crowded, driving even the most conservative investors into riskier assets. And there’s a greater danger of swings in currencies or monetary policies sparking sudden volatility in prices and money flows.

“These are very difficult times for financial institutions,” said Masato Mishina, the head of Nikko Asset Management Co.’s institutional business division. “High risks will get you high returns but bring the danger of wiping out your capital.”
Japan Post Bank Co. illustrates the scale of the outflows into global markets that ultra-low rates have provoked -- and that asset managers in Europe and the rest of the world may need to emulate. It’s amassed a $575 billion portfolio of overseas bonds in the space of a decade and now rubs shoulders with names like Pimco, BlackRock and Vanguard.

Money, in Japan, goes from wages to pension payments while the export industries must go on.