Japanese Investors Hold Back on Repatriation Amid Bond Yield Uncertainty

The repatriation of Japanese assets from abroad has begun to pick up speed, but major investors are still cautious about committing to domestic bonds due to uncertainty over where yields will peak and how much further interest rates must rise.

The Bank of Japan's rate hike last week and promises to tackle inflation have likely warded off another wave of speculative bets against the currency, but policymakers offer few clues about future rate decisions.

A recent selloff in bonds this week only reinforced uncertainty, leaving investors hesitant to commit heavily to domestic bonds while yields are still climbing. Shoki Omori, a fixed income strategist at Deutsche Bank in Tokyo, noted that the 'fast-money carry trade has already been unwound; the slow-money one has not started.'

A structural shift is needed for Japanese pensions and households holding overseas assets unhedged to repatriate their funds, which could lead to a sustained yen rally. Analysts say this era of relentless declines may be over, but a durable strengthening trend has yet to begin.