BRUSSELS, May 23 (Reuters) - The types of investors buying Japanese bonds will change as interest rates rise, with banks and insurance companies set to become more important, an official from the country's debt agency said on Thursday.
Japan hiked interest rates for the first time in 17 years in March and yields on Japanese government bonds (JGBs) have risen to multi-year highs in recent weeks as traders anticipate a further tightening of monetary policy in the months ahead, potentially making the debt more attractive.
"Interest rates will rise further, so other holders will be more important for us - such as banks, insurance companies and investors," Nobuki Sato, a director at the Debt Management Policy Division, Financial Bureau at Japan's Ministry of Finance, told a panel debate on bond markets at a conference held by the industry body ICMA in Brussels.
"As we return to positive rates, demand is changing," Sato said, noting that the majority of JGBs are held by domestic investors. "We have to watch the market, especially from now on."
The Bank of Japan continues to buy government bonds to manage a rise in bond yields and holds more than a 50% share of Japan's bond market.
Japan is the most indebted major economy in the world, and Sato stressed the need to make progress towards fiscal consolidation.
"I hope one day no one mentions that fiscal deficits are a hot topic for Japan," he said. (Reporting by Dhara Ranasinghe; editing by Harry Robertson and Andrew Heavens)
