Japanese investors became net buyers of foreign bonds in October for the first time in three months, reversing a period of selling as international bond yields eased and market uncertainty increased.

Data from Japan’s Ministry of Finance showed net purchases of 493.9 billion yen, equivalent to approximately $3.13 billion. The purchases included 457.2 billion yen in long-term bonds, the highest monthly amount since May, and 36.7 billion yen in short-term bills.

The renewed demand followed a decline in US Treasury yields from their early-October highs. Investors also increased their interest in safe-haven assets as technology stocks linked to artificial intelligence experienced significant selling pressure.

Despite October’s recovery, Japanese investors remain net sellers of foreign debt for the year, with cumulative net sales reaching 4.16 trillion yen.

US Treasury Yields Decline as Market Sentiment Shifts

The US 10-year Treasury yield reached 5.3645% on October 7, its highest level since April 2002. However, it subsequently declined by 36.4 basis points during October, marking its largest monthly fall since November 2023.

The movement reflected easing concerns about the Federal Reserve’s policy outlook and growing caution surrounding the scale of capital expenditure supporting the artificial intelligence industry.

Lower yields can improve the relative attractiveness of existing bonds, particularly for investors seeking to adjust their international fixed-income exposure. The October purchasing figures indicate that Japanese investors responded to the changing market environment by returning to overseas debt markets.

Institutional Buying Patterns Show Divergent Strategies

Purchasing activity varied among Japan’s major institutional investor groups.

Life insurers purchased 62.3 billion yen in foreign long-term bonds, ending a four-month selling streak. Trust accounts recorded net purchases of 777.4 billion yen.

Banks continued to sell foreign bonds, although their net sales declined to 833.5 billion yen, the lowest level in three months.

The differences suggest that the return to net foreign bond buying was not uniform across institutional investors. Trust accounts were the largest net buyers among the groups identified, while banks remained net sellers.

European Bonds Attract Japanese Investment

Separate Bank of Japan data covering the first nine months of the year showed that Japanese investors sold 6.06 trillion yen in US bonds while purchasing a combined 719.49 billion yen in European bonds.

Italy attracted 414.99 billion yen in net purchases, followed by Spain with 376.9 billion yen and Germany with 265.28 billion yen. French bonds moved in the opposite direction, recording net sales of 317.28 billion yen.

These figures highlight differences in Japanese investment flows across major international bond markets, with European sovereign debt attracting net buying despite the broader reduction in overseas debt holdings.

What Investors Should Watch Next

The sustainability of Japanese investors’ return to foreign bonds will depend partly on the direction of international yields and the relative attractiveness of domestic fixed-income markets.

Although October marked a shift toward net purchases, the cumulative 4.16 trillion yen in foreign debt sales this year indicates that broader portfolio adjustments remain underway.

Future movements in US Treasury yields, institutional allocation decisions and demand for European sovereign bonds will be important indicators of whether October represents a temporary reversal or the beginning of a more sustained change in Japanese overseas investment flows.