Japan's Bond Rout Turns Tide of Global Capital

Japan's bond market has been experiencing a significant shift in recent months. With benchmark Japanese bond yields breaking through a three-decade-old barrier, higher returns are starting to attract capital back home.

This is reversing what was once a dependable flow of funds into global bond markets. Japan, the biggest owner of U.S. Treasuries and one of the most reliable buyers of sovereign debt worldwide, is now witnessing a pullback in its demand for overseas holdings.

Official data shows Japanese investors have sold a net 3 trillion yen (US$18.7 billion) in overseas debt through August 22, the biggest year-to-date outflow since bonds tanked in 2022. This trend has been noticed by bond dealers and asset managers in Sydney, London, and Singapore.

A survey of 82 corporate Japanese pension funds by J.P. Morgan Asset Management found that the net share planning to boost domestic bond holdings was the highest since the poll began in 2008. Funds continued to reduce their holdings of overseas debt amid high currency hedging costs.