Fixed income, once a stabilising force for asset-rich Japanese corporate pension funds, now struggles to counter stock and currency volatility. Japanese investors are reducing fixed income, and heavily diversifying their portfolio as high currency hedging costs prompt caution, seeking shelter in short-term strategies amid uncertainties surrounding global central bank policies.

With Japanese stock prices reaching a 33-year high, the economy emerging from deflation, and the positive impact of corporate governance reforms over the past decade, it's not surprising that money managers, especially foreign investors, who previously showed little interest in Japan are now flocking to Tokyo.

Japan’s Sumitomo Mitsui Banking Corporation (SMBC) Pension Fund, managing assets worth 1 trillion yen ($6.6 billion), is poised to increase investments in illiquid alternatives, including infrastructure private equity and debt aimed at maximizing returns.

The $23 billion pension fund of the state of Geneva in Switzerland is favouring Japanese equities and seeking opportunities to acquire them when prices decline amid factors including attractive dividend yields, the monetary policy by the Japanese central bank and stable consumer habits.