An Era Where 'Safe Assets' Fall Due to Rising Interest Rates—A 7-Step Decision Table for Bond Investing to Protect 1 Million Yen
“I switched to bonds because stocks were scary, but the valuation has dropped.”
What you need if you feel this way is not a prediction of the next interest rate. What you need is a procedure to align the date you will use your money, the loss you can tolerate, the currency, and the structure of the product, one by one.
On September 24, 2026, it was reported that the 10-year Japanese government bond yield had risen to its highest level in about 30 years in the Japanese market after the long weekend. On the same day, the dollar index was noted at around 101.08, a two-month high, and the U.S. 5-year bond yield was hovering above 5%. Bonds are currently in a phase where the ‘fear of price declines’ and the ‘attractiveness of higher new interest income’ exist simultaneously.
This article has one goal. By the time you finish reading it, you will be in a position to decide for yourself, out of 1 million yen, ‘when you will use the money, which bonds to put it in, and how much to allocate.’ I will not recommend specific products, but rather create a decision table that you can use again and again.
Chapter 1: The Seesaw of ‘Interest Rates and Prices’ You Must Know First
A bond is a contract where you lend money to a government or company, receive fixed interest, and have the principal repaid at maturity. However, the market price before maturity fluctuates.
When you hold a bond with a face value of 100 and a 1% coupon, if a similar new bond is issued with a 3% coupon, most people will choose the 3%. To sell the old 1% bond, you must lower its price. This is the basic principle that ‘bond prices fall when interest rates rise.’ If interest rates fall, it moves in the opposite direction.
However, if you hold an individual bond until maturity and the issuer repays as promised, it is usually redeemed at face value even if the valuation drops in the interim. Bond investment trusts generally do not have a single maturity date and continue to replace the bonds they hold, so it cannot be said that ‘if you wait, it will definitely return to the purchase price.’ This difference will be covered in detail later.
Rising interest rates are not just a negative factor. While they cause temporary price drops for products you already hold, they also tend to increase the yields of bonds you buy new and the interest that funds will receive in the future. You need to think about today’s price decline and future earnings improvement separately.
What happens when looking at 1 million yen?
For a bond fund with a duration of about 5 years, as a simple approximation with other conditions held constant, a 1% rise in interest rates causes the price to fall by about 5%. For 1 million yen, that is about 50,000 yen. For a duration of 10 years, about 100,000 yen is a rough guide. In reality, it does not match exactly because the yield curve, interest, creditworthiness, and exchange rates also move, but it is effective for correcting the misunderstanding that ‘because it is a bond, it hardly moves.’
On the other hand, those who buy after interest rates have risen may be able to secure higher yields than before. The direction of profit and loss differs between those who already hold them and those who are buying now. When reading the news, please first confirm which side you are on.
Chapter 2: ‘Safety’ is Determined by Matching with Time Horizons, Not Product Names
Deposits, government bonds, corporate bonds, and bond funds all have different price movements and guarantees. Even so, they are collectively called ‘safe assets,’ which leads to misunderstandings.
What is truly important is the possibility of maintaining the principal until the day you use it. If it is for next month’s living expenses, ordinary deposits are a strong candidate. If it is for educational expenses to be used in 3 years, consider products with high safety that mature within 3 years. If it is for retirement funds 20 years from now, there is room to accept short-term price fluctuations and invest in a diversified manner.
Safety has at least five faces.
Safety Question to Confirm Principal: Who returns how much at maturity? Price: How much can it fluctuate before the day you use it? Credit: Can the issuer repay? Currency: Is there exchange rate loss when using it in yen? Liquidity: Can it be sold at a reasonable price on the day you need it?
No single product is the best in all five categories. While ordinary savings accounts are strong in terms of price stability and liquidity, their real value can decrease due to inflation. Even though long-term government bonds have high creditworthiness, their prices can fluctuate significantly before maturity. High-yield corporate bonds offer large interest payments but carry credit risk. Foreign bonds provide currency diversification, but they involve exchange rate fluctuations for those who use yen.
Even just from the free portion provided so far, please try writing down the “year of use,” “currency,” and “presence of maturity” next to the names of the products you hold. For products where you cannot write these three things, you need to redefine their roles before looking at their prices.
In the following section, we will evaluate funds in seven stages and determine investment limits numerically. We will compare individual bonds and funds, government bonds and corporate bonds, and yen-denominated bonds and foreign bonds, and break them down into three household examples and stress tests for interest rates and exchange rates.
—From here on is the paid portion—