DEBT FINANCING. Japan's fancied "double-decker" funds face speed bumps

TOKYO (Reuters) - Japan's hottest-selling mutual funds could see a slowdown in their explosive growth due to increased regulatory scrutiny at home and an uncertain outlook for the currency of a nation half a globe away.
These funds, loosely referred to as 'double-decker' funds, bundle high-return assets, such as junk bonds, and high-yielding currencies, mainly the Brazilian real. They have been the rage among Japanese investors in the past two years in an environment of persistently low returns.
They have drawn massive inflows and their assets now make up nearly 15 percent of the $840 billion Japanese mutual fund industry, in less than three years.
This rush of money, especially into the currency of Brazil, which unexpectedly cut interest rates late last month, has got Japan's Financial Services Agency worried.
Double-decker funds invested in the real accounted for 60 percent of the segment's total assets, as exposure to fast-growing Brazil, with an appreciating currency, was a natural choice for Japan's savers.
But there are signs a slowdown may be looming.
"Inflows into the real-linked funds may slow down," said Genzo Kimura, a bond fund manager at STB Asset Management, the fund management arm of Sumitomo Mitsui Trust Holding (8309.T).
"Their performance has been hit by falls in the real and the outlook is not necessarily convincing as Brazil may ease further."
Japan households, with some $15 trillion in personal assets, have been diversifying their portfolio, seeking higher-yielding instruments with steady monthly dividends as domestic interest rates remain pegged near zero and as Tokyo stocks have struggled.

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