In January, Japanese bond yields soared, attracting overseas capital inflows. According to data from the Japan Securities Dealers Association, the net purchase amount of Japanese bonds in January reached 6.04 trillion yen, second only to the record of 6.08 trillion yen set in March 2023.
The influx of funds temporarily strengthened the yen, but Goldman Sachs believes that as long as the macro environment maintains risk appetite, interest rate differentials remain stable, and fiscal expansion plans continue to advance, the depreciation pressure on the yen will persist.
According to the Wind Trading Desk, Goldman Sachs released a report on February 19 titled &#34;What Aspects of Japanese Capital Repatriation Should Be Noted?&#34; The report pointed out that the latest official data shows no signs that Japanese capital is massively selling overseas assets and repatriating to the domestic market, and investors betting on a significant capital shift towards Japanese assets are likely to face disappointment.
Specifically, retail and non-hedged investors (such as pension funds) have not changed their behavior patterns. Retail funds represented by NISA (Nippon Individual Savings Account) continued to strongly buy foreign stocks through investment trusts in January 2026.
For non-hedged investors, the current Japan-U.S. interest rate differential is still too large to trigger a large-scale bond repatriation. Giants like GPIF (Government Pension Investment Fund) are unlikely to make significant allocation adjustments before the next regular strategic review in 2030.
While the movements of hedged investors (mainly banks) may provide some support for the yen, the impact is limited. Paradoxically, as most developed market central banks cut interest rates while the Bank of Japan raises rates, the relative attractiveness of Japanese bonds has decreased for hedged investors due to lower hedging costs.
<h2>Balance of Payments (BoP) Data: Repatriation Signals Extremely Weak</h2>
Although the balance of payments (BoP) data shows some signs of funds flowing back to Japan from &#34;other parts of the world,&#34; it is mainly driven by custodial centers like the Cayman Islands and Luxembourg, which have little significance as a signal of sentiment change.
Although the flow of funds to U.S. stocks has decreased compared to early 2025, demand still exists.
Meanwhile, the rebound of the domestic Japanese stock market after the elections attracted global capital towards Japanese stocks (as of December 2025), but historical data shows that this net equity flow (regardless of direction) has a very limited observable relationship with the yen exchange rate, and therefore should not be seen as a major driving force for the yen's movement.
<h2>Retail and Individual Investors: Enthusiasm for Foreign Stocks Remains</h2>
Market participants often closely monitor retail demand as an early signal of changes in domestic investor sentiment. However, the data strongly refutes the narrative of &#34;repatriation.&#34;
Since the launch of the NISA program in 2024, Japanese retail investors' participation in foreign stocks has significantly increased. According to the Ministry of Finance's weekly and monthly reports on International Securities Transactions (ITS), as of January 2026, the funds flowing to foreign stocks through &#34;investment trust management companies&#34; (as intermediaries for retail investors) remain strong.
Although investment trusts also represent institutional investors, cross-referencing more granular fund flow data (FoF) confirms that the flow of &#34;investment funds&#34; is highly positively correlated with the flow from the household sector into all foreign securities. In short, Japanese households are not selling U.S. stocks; they are still actively buying.
<h2>Non-Hedging Investors: The Interest Rate Gap Remains an Insurmountable Divide</h2>
For &#34;key non-hedging investors&#34; (such as life insurance companies and trust accounts) that can truly influence exchange rates, the core indicator for measuring their potential repatriation is the interest rate differential.
Goldman Sachs' composite indicators show that as of January 2026, the demand for foreign assets from these investors remains stable. Even with the long-end Japanese government bond yields being sold off (yields rising), Japanese investors' demand for foreign bonds remains relatively stable.
Historical experience (such as in 2021) indicates that even with significant repatriation of funds (mainly from trust accounts selling stocks at that time), if macro trends (such as a rebound in U.S. stocks and an expansion of real interest rate differentials) dominate, the yen may still depreciate.
Significant repatriation from non-hedging investors requires a substantial narrowing of the interest rate differential. Furthermore, the Government Pension Investment Fund (GPIF) and private pensions that follow its allocation are unlikely to make significant allocation adjustments before 2030 or outside of regular strategic reviews.
<h2>Hedging Investors: Relative Attractiveness of Japanese Bonds Declines</h2>
For hedging investors (i.e., banks), the situation is slightly different; they are more likely to turn to foreign bonds rather than increase domestic allocations. In previous years, Japanese government bond yields were relatively attractive from the perspective of hedging investors, especially during the deep inversion of the U.S. Treasury yield curve in 2022, which prompted some funds to shift towards domestic bonds.
However, the situation has now reversed: as most developed countries' central banks cut interest rates while the Bank of Japan raises rates, the relative attractiveness of Japanese government bond yields has decreased due to lower hedging costs.
Although life insurance companies may increase their hedging ratios back to historical averages as hedging costs decline, and banks may again become a major part of capital outflows (i.e., selling spot and buying forward, thereby marginally supporting the yen), this does not equate to large-scale repatriation.
Goldman Sachs believes that for hedging investors to return to domestic assets on a large scale, a steeper Japanese government bond yield curve may be a prerequisite.
<h2>Investors Should Maintain Cautious Expectations</h2>
Goldman Sachs points out that, overall, investors expecting Japanese investors to significantly shift towards domestic assets in the near term are likely to be disappointed.
If the macro backdrop maintains a preference for risk assets, the interest rate differential remains broadly stable, and fiscal expansion plans continue, the depreciation pressure on the yen should persist. This creates a relatively favorable environment for investors holding short positions in yen or long positions in USD/JPY.
However, investors also need to be wary of potential turning points. Any meaningful signs of capital repatriation will become reasons for a more optimistic outlook on the yen, especially if such repatriation occurs against the backdrop of more aggressive interest rate hikes by the Bank of Japan.
Investors should closely monitor changes in the behavior of key unhedged investors in the monthly ITS report, as well as the evolution of the Japanese government bond yield curve

GS-C

GS-D

GS-A

Although there was a significant net purchase of Japanese government bonds in January, Goldman Sachs warns against misjudging that the "inflow tide" has arrived. The demand from Japanese retail investors for overseas stocks remains strong, while institutions are constrained by the still large interest rate differential between the U.S. and Japan, with weak signs of capital inflow. Goldman Sachs points out that if the macro environment maintains risk appetite, interest rate differentials remain stable, and Japan's fiscal expansion plans continue to advance, the depreciation pressure on the yen will persist

- In January, Japan's bond yields surged, attracting overseas capital with net purchases reaching 6.04 trillion yen, just shy of the record set in March 2023.  
- Goldman Sachs asserts that sustained yen depreciation pressure is likely unless macro conditions change. The report highlights that there are no significant signs of large-scale repatriation of funds or major shifts in investor behavior towards domestic assets.  
- Investors should maintain cautious expectations as the current environment still favors yen shorts or dollar longs against the yen, while underlying capital flow dynamics remain critical to watch.

Will Japan's overseas capital "return on a large scale"?