Japanese investors continued to reduce their holdings of foreign bonds in September, driven by rising borrowing costs abroad and increasingly attractive yields on domestic debt. According to data from the Finance Ministry released Tuesday, Japanese investors sold a net 969 billion yen (approximately US$6.13 billion) of foreign bonds last month, marking the second consecutive month of net outflows. While this was a decline from August’s net sales of 1.16 trillion yen, the trend reflects a broader shift in investment behavior.

The net sales comprised a substantial 1.43 trillion yen offload of foreign long-term bonds—the largest monthly amount in six months—offset partially by purchases of around 457 billion yen in short-term bills. This trend is attributed in part to the recent rise in Japan’s government bond yields, with the benchmark 10-year bond yield climbing to a 30-year peak of 3.122% earlier in the week. The rise in domestic yields has been drawing some of Japan’s extensive overseas holdings back home, signaling a notable change in global capital flows.

So far this year, Japanese investors have sold a net total of about 5.08 trillion yen in foreign bonds, marking the largest annual outflow since 2022. Such outflows have the potential to boost the Japanese yen’s value and exert pressure on global bond markets, where Japan has been a major buyer over past decades.

The shift has been influenced by heightened inflation concerns resulting from surging energy prices, which prompted the US Federal Reserve and the European Central Bank to implement interest rate hikes in September. These actions have placed additional strain on bond markets internationally.

Institutional investors within Japan played a key role in the September sell-off of foreign debt. Japanese banks led, selling a net 2.49 trillion yen of foreign long-term bonds—the highest amount in seven months. Life insurance companies and investment trust management firms also registered net sales of 288.6 billion yen and 200.1 billion yen, respectively. In contrast, trust accounts bucked the trend by purchasing a net 1.2 trillion yen in foreign long-term bonds, illustrating varying strategies among Japanese financial institutions.

A separate report from the Bank of Japan indicated that, through the first eight months of 2026, Japanese investors had sold a net 4.74 trillion yen of US bonds but increased holdings in European debt by a net 355.85 billion yen. Within Europe, Japanese demand favored Italian bonds, which saw net purchases of 329.82 billion yen, while bonds from France and Germany experienced net sales of 208.59 billion yen and 94.25 billion yen, respectively.