Foreign Investors Return to Japan’s Bonds Amid Fiscal Policy Shift

Japanese long-term bonds saw the first foreign inflows in weeks as policymakers planned reduced debt issuance. Foreigners purchased ¥273.5 billion, marking a shift in sentiment. Japanese stocks and short-term bills also saw foreign interest, with the Nikkei reaching historic levels despite slight retreat.

Foreign investors are showing renewed interest in Japanese bonds, marking the first weekly inflow in three weeks through January 3. The move follows a signal from policymakers to adopt a more cautious debt issuance approach, alleviating concerns over an expansionary fiscal policy.

Data released on Thursday by Japan's Ministry of Finance highlighted the purchase of approximately ¥273.5 billion ($1.74 billion) in Japanese long-term debt securities by foreigners, the first such net buy since December 13. This comes after the approval of a plan on December 26 to issue the smallest amount of super-long government bonds in 17 years, totaling ¥17.4 trillion for the fiscal year beginning April 2026.

In addition, Japanese short-term bills recorded ¥137 billion in net foreign inflows last week. Despite an earlier ¥4.45 trillion selloff, the outlook for interest rates remains a concern. Japanese stocks also saw strong foreign investment with ¥8.27 trillion pumped into the market last year, the most in over a decade, as the Nikkei reached a record close before slightly retreating.

(With inputs from agencies.)