Japan is poised to pass China as America’s biggest foreign creditor this year with help from the world’s largest pension fund, according to Nomura Holdings Inc.

The 126.6 trillion yen ($1.25 trillion) Government Pension Investment Fund will increase overseas bond holdings in coming months to earn higher yields, according to money managers, strategists and economists surveyed by Bloomberg. Separate funds in Japan that use GPIF’s allocations as a benchmark may follow, according to a professor who advises the government. China’s accumulation of reserves that it has used to buy Treasuries will diminish, a Beijing-based official said last month.

Japan boosted its Treasury holdings to $1.21 trillion by the end of April, closing in on China’s $1.26 trillion. The purchases helped drive a rally in U.S. government securities in the first half of 2014 even as China sold and the Federal Reserve scaled back the bond purchases it has used to support the economy. Treasuries need Japanese support again as improvement in the U.S. labor market drives speculation the Fed will raise interest rates next year.

“We do think the flow is going to be notable,” Martin Whetton, an interest-rate strategist in Sydney at Nomura, Japan’s biggest brokerage, said in a phone interview on July 7. “From October onwards is when they would start to move some of this money. It’s not enough of a flow to stop yields in their tracks from rising.”

Japan’s holdings will probably surpass China’s by year-end, Whetton said. U.S. 10-year yields will rise to 2.90 percent by Dec. 31, he said, from 2.55 percent as of 12:10 p.m. in Tokyo.

The new GPIF allocation changes aren’t decided yet, Yasuhiro Yonezawa, the head of the fund’s investment committee, said in an interview in Tokyo yesterday.

GPIF will probably increase its holdings of overseas bonds including Treasuries to 14 percent of assets from 11 percent, according to a Bloomberg News survey in May. The extra amount it would need to purchase equates to $37.4 billion based on the fund’s current size. The U.S. Treasury market of $12.1 trillion is the world’s biggest.

The new portfolio will be adopted by three other public funds managing a combined 28.8 trillion yen, or $283 billion, according to Takatoshi Ito, a professor who led a panel that advised the government on revamping the nation’s pension investments.

Ito said in April that GPIF should cut its holdings of Japanese government bonds given 10-year yields, currently at 0.545 percent, are the lowest in the world.

Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, said it’s not certain that GPIF’s purchases will push Japan’s Treasury holdings past China’s.

“It’ll be a help, but it’s not a game changer,” Fujiki said yesterday in a phone interview. The company’s New York unit is one of the 22 primary dealers that underwrite the U.S. debt.

Japan’s Treasury position tends to rise most when it’s buying dollars and selling yen, and that isn’t happening now, Fujiki said. An increase in Belgium’s holdings of Treasuries from September through March has raised speculation China is purchasing some of its Treasuries through Europe, he said.

U.S. 10-year yields will rise to 3 percent by year-end, Fujiki said.

Treasuries returned 3.3 percent in the first half of the year, though the rally began to falter in June as investors lost 0.1 percent, based on the Bloomberg U.S. Treasury Bond Index.

Investors are betting the Fed will raise borrowing costs next year after a government report last week showed U.S. employers added 288,000 workers in June, compared with the 215,000 projected by a Bloomberg News survey of economists.

Traders see a more than 70 percent chance that officials will raise the key rate from near zero by September 2015, fed fund futures contracts show.

The Fed trimmed bond-buying by $10 billion for a fifth straight meeting in June to $35 billion, on pace to end the program late this year.

China cut its Treasuries holdings with sales in February, March and April, bringing its stake to the lowest level in more than a year.

The country’s reserves accumulation will slow as the country’s current account becomes more balanced, Guan Tao, head of the balance of payments department at the State Administration of Foreign Exchange, said on June 12.