Japanese investors extend foreign bond sales as domestic yields draw funds home

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Japanese investors sell foreign bonds

Highlights

Japanese investors sold a net 161.6 billion yen of foreign long-term bonds and 156.9 billion yen of short-term bills in the week through Oct. 17, extending a five-week selling streak.
The benchmark Japanese 10-year bond yield has risen over 80 basis points this year, drawing capital home and resulting in year-to-date foreign bond disposals of 5.18 trillion yen, the largest since 2022.
Japanese life insurers, managing about $2.5 trillion in assets, plan to maintain or increase domestic bond purchases, while foreign investors bought 1.45 trillion yen of Japanese long-term bonds last week.

Bond allocation shifts toward Japan

As reported by Reuters, Japan's Ministry of Finance data showed investors sold a net 161.6 billion yen of foreign long-term bonds in the week through Oct. 17, along with 156.9 billion yen of short-term bills. The latest move extends a five-week run of foreign bond sales, even as the weekly pace slows.

The shift comes as the benchmark Japanese 10-year bond yield, up more than 80 basis points this year, starts to pull capital back into the home market. Recent safe-haven demand has moved yields away from the three-decade high reached in October, but domestic bonds remain more compelling for Japanese investors.

At the same time, easing pressure in the U.S. bond market appears to have tempered the pace of selling abroad. The benchmark 10-year U.S. Treasury yield has fallen by roughly 27 basis points from the 24-1/2-year high of 5.3645% touched earlier this month, as investors seek safety amid stock market turbulence tied to AI concerns.

Insurers and banks remain in focus

Over the five-week period, Japanese investors' total net sales of foreign long-term bonds have reached about 3.43 trillion yen, taking year-to-date net disposals to 5.18 trillion yen. That is the largest for the comparable period since 2022, highlighting a broader rebalancing in cross-border fixed-income portfolios.

Domestic Japanese banks have led this year's selling, while life insurers have signaled plans to maintain or increase purchases of domestic bonds in the second half of the fiscal year. Investor attention this week is on updated investment plans from life insurers, which manage about $2.5 trillion in assets, with roughly a quarter held overseas, according to the Life Insurance Association of Japan.

In other cross-border flows, Japanese investors bought a net 128.3 billion yen of foreign equities, marking a fifth weekly net purchase in six weeks. Foreign investors, meanwhile, were net buyers of Japanese long-term bonds for a third straight week, purchasing 1.45 trillion yen, although they sold 2.24 trillion yen of short-term bills, the biggest weekly disposal in three weeks.

In our earlier article on U.S. Treasury yield moves after a hotter-than-expected September CPI report, we explained how inflation surprises and shifting expectations ahead of the Fed’s next decision reshaped rate bets. We also noted that risk repricing tied to AI concerns and tighter credit conditions helped keep demand for government bonds supported despite the inflation uptick.

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