HSBC has indicated that if Japanese bond yields climb further, prompting Japanese investors to repatriate funds, the bond markets of Malaysia and Mexico would face the greatest risk. In a report, HSBC strategists Alastair Pinder and Pankaj Agarwala wrote that an analysis of emerging market bonds and equities held by Japanese investors suggests Malaysia, Chile, and Mexico have "outsized exposure." They added, "A significant sell-off in Japanese government bonds could also trigger a repatriation of overseas equity investments, from which perspective India and South Africa appear vulnerable." The strategists noted that while a potential unwinding of carry trades—where investors sell high-yielding assets to close positions funded in yen—represents the "biggest risk," the probability of such an event occurring in the short term is limited. Last week's sharp decline in Japanese government bond prices drove yields to record highs and triggered volatility across global markets, leading traders to closely monitor whether Japanese investors are starting to bring capital home. Japan has approximately $5 trillion in capital invested overseas, a figure that excludes yen borrowed by foreign funds for investing in global financial assets. In a report dated January 26, the HSBC strategists also wrote that rising Japanese government bond yields could exert upward pressure on global bond yields, thereby hurting bond valuations. They added that, in this regard, an analysis of relative market returns linked to changes in the 10-year U.S. Treasury yield suggests countries like South Korea face the highest risks. The sell-off in Japanese bonds occurred as tax cut and spending increase proposals from Prime Minister Sanae Takaichi raised concerns about fiscal overexpansion. With a general election approaching on February 8 and speculation mounting that authorities may intervene to support the yen, traders are closely watching for heightened market volatility.