Inflation-linked government bond in Japan

What it is

A government bond where both the interest and the sum repaid at the end are adjusted for a price index. Instead of a fixed number of pounds or dollars, you are promised a fixed amount of buying power plus a small real rate on top.

That makes it the one instrument that answers the question savers actually care about: will this money still buy the same things in ten years? A normal bond cannot promise that; an inflation-linked one can, if held to maturity.

Between issue and maturity it is still a bond, so its price moves with real interest rates. In 2022, when real rates jumped, long-dated linkers fell by a third or more, which surprised people who thought inflation protection meant no risk.

How it works

The bond's face value is scaled by an inflation index each period, and the coupon is a small percentage of that scaled value.
When prices rise, both the interest payments and the eventual repayment rise with them.
The real rate you lock in is set by the price you pay; it can be positive, zero or negative.
At maturity you receive the inflation-adjusted face value, often with a floor at the original amount.

The honest pros and cons

For

The only mainstream instrument that directly protects buying power.
Backed by the same government promise as ordinary bonds.
Useful for money earmarked for a distant, real-world cost such as retirement spending.

Against

Price falls can be severe when real interest rates rise, especially for long maturities.
The real rate on offer is sometimes tiny or negative, meaning you pay for the protection.
The tax on the inflation uplift can be awkward in some countries.
Which price index is used matters; it may not match your own cost of living.

Getting it in Japan

not researched

Wherever you are

Check the real yield on offer; below zero, you are paying for insurance and should know it.
Match the maturity to when you need the money, because early sale reintroduces price risk.
Buy directly from the treasury where available, or through a fund that holds a spread of maturities.

Go deeper

Also called

TIPS, index-linked gilts, I bonds, Tesouro IPCA+, Udibonos, linkers

Often confused with

Government bond: A loan to a government that pays interest and returns your money on a set date, called its maturity.
Savings account: Money kept at a bank that pays interest and can be withdrawn at any time.