Japanese Investors Sell Foreign Bonds Again

That matters well beyond Tokyo. Japanese institutional investors, including pension funds and insurers, have been a major marginal buyer of U.S. Treasuries and other developed-market debt for years. If they keep pulling back, global bond markets lose a steady bid at a time when government borrowing needs are already heavy and inflation concerns are keeping yields elevated. The 10-year U.S. Treasury yield was around 4.8%, near multi-decade highs, while U.S. inflation has remained above the Federal Reserve’s 2% target for 65 straight months.

The move also reflects a broader repricing in Japan’s own fixed-income market. As domestic yields rise, the incentive to chase foreign debt narrows, especially once currency hedging costs are added. That leaves Japanese buyers less willing to absorb long-duration bonds abroad just as selling pressure has intensified from geopolitical risks and firmer energy prices.

There were still signs that Japanese investors have not fully retreated from foreign risk assets. They bought a net 35.8 billion yen of overseas stocks last week, their third weekly net purchase in four weeks, suggesting they are rotating away from duration rather than abandoning foreign markets altogether.

Foreign investors, meanwhile, continued to buy Japanese long-term bonds for a second week, taking a net 509.1 billion yen, a vote of confidence in the local market even as Japan’s inflation backdrop worsens. Foreigners also returned to Japanese stocks with modest net purchases after heavy selling the previous week.

For investors, the key question is whether the latest outflows from Japan are a temporary reaction to volatile rate moves or the start of a more durable shift in cross-border capital flows. If domestic Japanese yields keep climbing, overseas bond demand from Japan could stay subdued, removing support for U.S. and other developed sovereign markets just as refinancing pressures and inflation fears remain elevated.