economy
February 20, 2026
The bond market's ‘quiet stabilizer’ is fading
Japan's changing role in the bond market could be about to shake up borrowing costs in the U.S. and beyond.
TL;DR
- Japanese investors are major foreign holders of sovereign debt, including U.S. Treasurys.
- Rising yields on Japanese government bonds (JGBs) may incentivize investors to bring capital back to Japan.
- A reduction in Japanese demand for foreign bonds could lead to higher yields globally, especially for U.S. Treasurys and European sovereign debt.
- Prime Minister Sanae Takaichi's fiscal policies and the Bank of Japan's monetary policy adjustments are contributing to changing yield dynamics.
- Factors such as JGB volatility and liquidity need to improve for significant capital repatriation to occur.
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