Japanese Capital Repatriation Slowed by Interest Rate Uncertainty

The repatriation of Japanese capital from abroad has started, but it's not happening as quickly as expected. The Bank of Japan's interest rate hike last week and pledges to tackle inflation have likely warded off another wave of speculative bets against the yen.

However, major investors remain cautious about committing heavily to domestic bonds while yields are still climbing and policymakers offer few clues about how much further rates must rise. Two dovish dissenting votes at the recent meeting and a bond selloff this week have reinforced the uncertainty.

According to Shoki Omori, fixed income strategist at Deutsche Bank in Tokyo, 'the fast-money carry trade has already been unwound; the slow-money one has not started.' He believes that what's left is structural: Japanese pensions and households holding overseas assets unhedged. This could be a significant challenge for the yen.

The yen has given up most of its gains from early September and traded near 159 per dollar on Friday, not far from the median six-month projection of analysts polled by Reuters earlier this month. The move leaves the yen down only about 1% for the year, although it touched a near four-decade low in July.

Data shows short sellers have retreated in tandem with the price, with speculative positioning in the yen flipping from a deep net short to the largest net long since July 2025 at $9.7 billion in just the first two weeks of September.