The underperformance was driven by a
substantial underweight to Japanese debt just when the country was experiencing an extraordinary
bond rally engineered by the Bank of Japan's quantitative easing
program.2 The average weight to Japan in the fundamentally weighted index was roughly 9 % versus 30 % in the cap - weighted index over the 12 - month period.
The asset - buying
program of the Bank of Japan (BOJ) has been so
substantial it has left interest rates squarely in negative territory and has created a problematic shortage of JGBs in the marketplace, as the BOJ actively competes with large institutions for existing
bonds (Kawa, 2016).