Japanese investors exit French bonds over fiscal concerns

Japanese investors are adjusting their overseas portfolios by moving away from bonds and into stocks, while also scaling back yen-funded carry trades. This shift is creating challenges for France's sovereign debt market, as some funds reduce their holdings of French government bonds due to growing fiscal concerns.

Sumitomo Mitsui DS Asset Management has reportedly sold off all its French government bonds, redirecting funds into German bunds and short-term Japanese government notes. This move aligns with a broader trend among Japanese investors, who are rebalancing their portfolios away from bonds and toward safer assets amid increasing scrutiny of France's fiscal situation.

Japan holds a significant portion of France's sovereign debt, accounting for 5.2% as of 2025. The reallocation of Japanese capital away from French bonds could intensify funding pressures, particularly as investors seek out perceived safer and more liquid investments like German debt and short-dated Japanese government paper.

Earlier reports highlighted rising borrowing costs and wider spreads over German bunds, signaling growing investor concern ahead of a crucial vote on France's deficit-reduction measures. Officials have emphasized the need for a credible budget with spending cuts and tax increases to restore confidence and mitigate further market strain.