Japanese Investors Shift Focus: A Pivot from Overseas Bonds to Domestic Debt

Japanese investors withdrew a substantial amount from overseas bonds in February, opting for more attractive domestic alternatives due to falling U.S. bond yields. They sold a net 3.07 trillion yen worth of foreign bonds, marking the largest monthly divestment in 16 months. NISA-related demand drove foreign stock purchases.

In a significant financial maneuver, Japanese investors pulled out the largest amount of funds from overseas bonds in 16 months this February. The withdrawal was driven by declining U.S. bond yields and better returns on domestic bonds, making local debt more appealing.

According to Japan's Ministry of Finance, they unloaded a net 3.07 trillion yen ($19.37 billion) of foreign bonds, marking the most substantial monthly net sales since 6.5 trillion yen was recorded in October 2024. Remarkably, 3.42 trillion yen was divested from foreign long-term bonds.

In contrast, foreign short-term bonds saw purchases of about 352.1 billion yen, while foreign stock purchases reached a net 642.1 billion yen, driven by NISA-related demand. U.S. and European bonds were also targeted for investment earlier in January, with notable buys in German and Spanish securities.

(With inputs from agencies.)