Malaysia Bonds Face Growing Risk as Japanese Capital Prepares to Pull Out

Malaysia's struggling bond market may face an outflow of Japanese capital as its yield premium shrinks to around 115 basis points, significantly lower than the five-year average of 278 basis points.

This decline in yield premium has been attributed to increased borrowing costs in Japan, with the country's 10-year yield rising to a three-decade high earlier this month.

Japanese investors hold a record amount of Malaysian debt securities, worth ¥1.1 trillion (US$7.1 billion or RM28.9 billion) as of the end of 2025, according to data from the Bank of Japan.

Experts warn that if Japanese bonds become more attractive, chances are rising for Japanese capital to return home, posing a risk to Malaysia's debt market.