In January, Japanese government bond yields surged, attracting inflows of overseas capital. According to data from the Japan Securities Dealers Association, net purchases of Japanese bonds in January reached ¥6.04 trillion, second only to the record ¥6.08 trillion set in March 2023.

While the capital inflows provided a short-term boost to the yen's strength, Goldman Sachs believes that as long as the broader macroeconomic environment remains risk-positive, interest rate differentials stay stable, and fiscal expansion plans continue, downward pressure on the yen will persist.

According to the Wind trading desk, Goldman Sachs issued a report on February 19 titled "What Aspects of Japan's Capital Repatriation Warrant Attention?". The report indicates that the latest official data shows no signs of Japanese investors engaging in large-scale selling of overseas assets to repatriate funds. Investors betting on a major shift in capital flows back to Japanese assets are likely to be disappointed.

Specifically, retail investors and non-hedged investors (such as pension funds) have not altered their behavior patterns. Retail funds, represented by NISA (Nippon Individual Savings Accounts), continued to show strong buying of foreign equities through investment trusts as of January 2026.

For non-hedged investors, the current interest rate differential between Japan and the US remains too wide to trigger a significant repatriation of bond investments. Major entities like the GPIF (Government Pension Investment Fund) are unlikely to make substantial allocation changes before 2030 or the next regular strategic review.

Movements by hedged investors (primarily banks), while potentially offering some support to the yen, are expected to be limited. Counterintuitively, as most developed market central banks cut interest rates while the Bank of Japan hikes, the relative attractiveness of Japanese government bonds for hedged investors has actually decreased due to lower hedging costs.

Balance of Payments (BoP) Data: Repatriation Signals Extremely Weak Balance of Payments data, while showing some signs of flows returning to Japan from the "rest of the world," are primarily driven by custodian centers like the Cayman Islands and Luxembourg, offering little signal of a meaningful sentiment shift.

Although flows into US equities have moderated compared to early 2025, demand remains present.

Concurrently, the post-election rebound in Japanese domestic stocks attracted global capital into Japanese equities (as of December 2025). However, historical data shows a very limited observable relationship between net equity flows (in either direction) and yen exchange rates, meaning such flows should not be considered a primary driver of the yen's movement.

Retail and Individual Investors: Enthusiasm for Foreign Stocks Remains Market participants often closely watch retail demand as an early indicator of a shift in domestic investor sentiment. However, the data strongly refutes the "repatriation" narrative.

Since the NISA program's expansion in 2024, Japanese retail participation in foreign equities has increased significantly. According to weekly and monthly International Securities Transactions (ITS) reports released by the Ministry of Finance, flows into foreign stocks via "Investment Trust Management Companies" (acting as intermediaries for retail investors) remained robust as of January 2026.

Although investment trusts also represent institutional investors, cross-referencing more granular Flow of Funds (FoF) data confirms that flows into "Investment Funds" are highly positively correlated with flows into all foreign securities by the household sector. In short, Japanese households are not selling US stocks; they are still actively buying.

Non-Hedged Investors: Interest Rate Differentials Remain a Significant Hurdle For the "key non-hedged investors" capable of materially influencing the exchange rate (such as life insurers and trust accounts), the core metric for assessing repatriation likelihood is the interest rate differential.

Goldman Sachs' composite indicator shows that, as of January 2026, demand for foreign assets from these investors remains stable. Even amid selling pressure on long-term JGBs (leading to higher yields), Japanese investor demand for foreign bonds has remained relatively steady.

Historical experience (for instance, in 2021) shows that even when significant repatriation occurred (primarily trust accounts selling stocks then), the yen could still depreciate if macro trends (like a US equity rebound and widening real interest rate differentials) dominated.

A significant repatriation by non-hedged investors would require a substantial narrowing of interest rate differentials. Furthermore, the GPIF and private pensions that follow its lead are unlikely to make major allocation adjustments before 2030 or outside their regular strategic reviews.

Hedged Investors: Relative Attractiveness of JGBs Declines The situation is slightly different for hedged investors (i.e., banks), who are more likely to shift towards foreign bonds rather than increase domestic allocations. In previous years, from a hedged investor's perspective, JGB yields were relatively attractive, especially during the deep inversion of the US Treasury curve in 2022, which prompted some shifts into domestic bonds.

However, the situation has now reversed: with most developed market central banks cutting rates and the Bank of Japan hiking, the relative attractiveness of JGB yields has diminished due to lower hedging costs.

While life insurers might increase their hedge ratios back towards historical averages as hedging costs fall, and banks could again become a net source of outflows (selling spot and buying forward, thus marginally supporting the yen), this does not equate to large-scale repatriation.

Goldman Sachs suggests that a significant return of hedged investors to domestic assets would likely require a steeper JGB yield curve as a precondition.

Investors Should Maintain Cautious Expectations

Goldman Sachs concludes that, overall, investors anticipating a significant near-term shift by Japanese investors back into domestic assets are likely to be disappointed.

If the macro backdrop remains supportive of risk assets, interest rate differentials remain broadly stable, and fiscal expansion plans continue, downward pressure on the yen should persist. This creates a relatively favorable environment for investors holding short yen positions or long USD/JPY positions.

However, investors should also be alert to potential turning points. Any meaningful signs of capital repatriation would become a reason to adopt a more bullish stance on the yen, particularly if such repatriation occurs against a backdrop of more aggressive rate hikes by the Bank of Japan.

Investors are advised to closely monitor behavioral changes among key non-hedged investors in the monthly ITS reports and the evolving shape of the Japanese Government Bond yield curve.