Japanese investors sell $20 billion in bonds amid tariff turmoil

As Donald Trump’s tariffs rattled markets earlier this month, Japanese investors offloaded more than $20 billion in international bonds, a sign of how Wall Street turbulence is spreading globally.

According to preliminary data from Japan’s Ministry of Finance, private institutions, including banks and pension funds, sold $17.5 billion in long-term foreign bonds in the week to April 4, and another $3.6 billion in the following seven days.

Japan holds $1.1 trillion in US Treasury bonds across the public and private sectors – the world’s largest international holdings – so its transactions are closely watched and considered a proxy for buying or selling US government debt.

The recent sales mark one of the largest outflows in any two-week period since records began in 2005.

The outflow from international bonds followed Trump’s “liberation day” tariff announcement on April 2, which triggered turbulence in global stock and bond markets.

Wall Street’s S&P 500 index fell 12% in the four trading days after April 2, before recovering somewhat after Trump suspended most of his high “reciprocal” tariffs for 90 days.

US Treasury bonds also experienced a significant sell-off during the market volatility, with yields on 10-year bonds rising to their highest level since 2001 in the week of April 11.

The Ministry of Finance report does not provide details on which specific long-term bonds were bought and sold by the country’s financial institutions.

However, Tomoaki Shishido, a senior interest rate strategist at Japanese bank Nomura, said that “a significant portion of [Japan’s] sales were likely either US Treasury bonds or US agency bonds.” The latter refers to mortgage-backed securities guaranteed by the US government.

He added, “Some foreign bond sales may be due to rebalancing by Japanese pension funds… or banks or life insurers reducing interest rate risks.”

Sales by US asset managers and the unwinding of leveraged positions by US and international hedge funds may also have contributed to the sell-off in Treasury bonds this month.

However, Japan’s rush to sell international bonds is a sign of how Wall Street turbulence is spreading to global markets.

According to some investors, the decline in US stocks would have unbalanced Japanese pension funds’ allocations to international debt and equities.

As a result, they said, the funds would be under pressure to sell Treasury bonds and other US government-backed debt to realign their portfolios.

According to analysts, some of the sales by private Japanese investors may also be a result of the unwinding of hedging strategies used by Japanese banks.

In these transactions, known as “carry trades,” investors borrow from low-yield markets to bet on higher-yield markets. Due to its relatively low yields, Japan is a common “funding” market for these transactions.

However, Stefan Angrick, a Moody’s Analytics economist in Japan, said that while the volume of Treasury bonds sold by Japanese funds was significant, it would not be large enough to fully explain the yield increases in the first two weeks of April.

Noting that the US Treasury market turns over nearly $1 trillion on an average day, Angrick said, “Headline figures may look large, but in terms of the bond market, they are just a ripple.”