Rising domestic yields, now at multi-decade highs, are quietly pushing Japanese financial institutions to rethink their asset allocation.
Based on data from the Japan Securities Dealers Association, the Financial Times calculated that over the five months to August, Japan's major banks and insurers together net-purchased 5.4 trillion yen (about US$34 billion) of Japanese government bonds (JGBs) with maturities of two years or more — the largest net buying for that period since early 2023.
At the same time, Ministry of Finance data show that banks' net sales of foreign bonds climbed to 2.5 trillion yen in September; over the first nine months of 2026, banks' total net sales of foreign debt have exceeded any comparable period since 2005.
The shift is drawing intense market attention. Some investors worry that if the repatriation trend broadens, it could not only lift the yen but also deal a blow to government bond markets in the United States and Europe — markets already under the greatest fiscal deficit pressure in decades.
Yields recover, JGBs regain competitiveness
The core driver behind this allocation shift is growing confidence that Japanese interest rates will remain positive over the long term. The Bank of Japan's policy rate now stands at its highest in 31 years, the 30-year JGB yield earlier this year hit a record 4.27%, and the 10-year yield touched a 30-year high this month.
"JGB yields have recovered to levels that allow domestic investors to keep their money at home rather than chase returns overseas," said Chris Scicluna, head of research at Daiwa Capital Markets Europe.
Masahiko Loo, senior fixed income strategist at State Street Investment Management, noted that "a more credible monetary policy normalization process by the Bank of Japan helps cement expectations that JGB yields will stabilize at higher levels." He added that "JGBs are becoming a strong competitor in the global contest for capital."
In addition, rising currency hedging costs have further eroded the real returns Japanese investors earn on foreign bonds, making domestic assets relatively more attractive.
Foreign debt sales accelerate, net US Treasury investment turns negative
Signs of repatriation are not limited to the buying side of JGBs. According to Bank of Japan data, Japan's net portfolio investment in long-term US Treasuries has turned negative this year, with net sales the largest since 2022. At the same time, sharp swings in US and French bond markets are seen as one factor pushing Japanese banks to speed up cuts to their foreign bond exposure.
"Historically, the US and European economies, including France, have been the main beneficiaries of Japanese bond investors seeking yield abroad," Scicluna said. "As the Bank of Japan further normalizes monetary policy, that support may end just when these bond markets need it most."
Analysts note that with higher-yielding domestic assets becoming increasingly appealing, Japan's marginal influence on overseas bond markets should not be underestimated — especially at a time when major developed economies are expected to post their largest fiscal deficits since 2021.
Full repatriation still distant, debate persists
Despite the attention these developments are attracting, several analysts remain cautious about the "large-scale repatriation" thesis.
Stephen Spratt, rates strategist at Societe Generale, said the data clearly show Japanese banks reducing foreign bond exposure, but their pace of JGB buying has yet to form a convincing upward trend. Citing Bank of Japan data, he pointed out that lending by major banks rose 7.9% year on year in August, indicating that credit expansion remains a better option for banks allocating capital.
Pension fund flows look even more conservative. Based on Ministry of Finance data, the Financial Times calculated that pension funds' net purchases of long-term foreign bonds so far this year still amount to as much as 11.4 trillion yen, with no obvious sign of retreat. Analysts argue that recent changes in pension funds' buy-sell mix are more a mechanical rebalancing in response to market moves than a fundamental reallocation of assets.
Shoki Omori, chief strategist in Tokyo at Deutsche Bank, said Japanese investors increased holdings of German and other European government bonds over the same period, suggesting their logic is closer to "seeking safer assets" than to systematic repatriation. "I think it is too early to conclude that repatriation has already happened," he said. "I need to see clear evidence that life insurers are selling foreign government bonds, and the current data are far from sufficient."
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