Japanese investors hold an estimated ¥23 trillion ($145 billion) of French bonds as of July, representing 6.6% of Japan's total overseas debt holdings—the highest overweight in the euro region relative to benchmark indices. This outsized position raises concerns about further selling that could deepen France's debt crisis, driven by missed deficit targets, policy gridlock, and upcoming elections. Rising domestic yields in Japan are making Japanese government bonds more attractive, boosting incentives to repatriate capital and potentially triggering additional French bond sales.
Fivestar Asset Management Co.’s Hideo Shimomura warned, "This is just the beginning," predicting French 10-year yields could reach 7% if the ECB remains inactive. The current 5% yield represents the highest level since 2002, with French bonds losing 4.9% this year, making them the fourth-worst performers globally. Japanese holdings have declined 2.5% since year-end, prompting further exits by firms like Sumitomo Mitsui DS Asset Management Co. under Shinji Kunibe.
Market participants caution that if Japan reduces its overweight position, other benchmark investors may reassess their allocations, potentially amplifying the sell-off.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing