The JGB conundrum

Thanks to bond indices, international bond funds have had little choice but to up their exposure to the Japanese government bond market. New indices could change that.

No country is more mystifying to outsiders than Japan. On the surface it is a modern capitalist democracy. Behind this mask is a society where tradition runs deep and political and economic power is wielded by a bureaucracy with a neo-mercantilist agenda.

Global investors often find Japan baffling, particularly those based in other countries and without a first-hand knowledge of it. Financial laws dont work in Japan as Western economic theory suggests because Japan doesnt practice Anglo-Saxon capitalism. Some investors have had to learn this the hard way.

Brian Baker, CEO and director at PIMCO Asia in Singapore, tells a common tale. PIMCO is a California-based fixed-income investment giant, with $200 billion...

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