The money that won't come home

You know the move.

Years ago, your bank paid almost nothing on savings. So you opened an account somewhere else that paid more, and you moved the money.

Then one day your old bank raises its rate. Now it pays about the same. Maybe more.

Do you move the money back? Most people don't, at least not right away. Moving money is a hassle. And you're not sure the new rate will last.

Japan is living that story right now, with about $5 trillion.

For decades, Japanese bonds paid close to nothing. So Japan's savers, pension funds and insurers sent their money abroad. Japanese investors now hold roughly $5 trillion of overseas assets, including about $1 trillion of U.S. Treasuries. That makes Japan the biggest foreign owner of U.S. government debt.

Now the home rate is back. On September 30, the 10-year Japanese government bond yielded 3.10%, the highest since 1996. The 30-year touched a record 4.22% earlier in the month.

And for a Japanese buyer who hedges the currency, home now pays more. By my rough math, a hedged 10-year Treasury yields about 2.7%.

Japan's money has every reason to come home. Most of it is still away.

Japanese investors did sell $29.6 billion of U.S. debt in the first quarter. But RBC's strategists calculate that over the 12 months to late summer, they were still net buyers of foreign bonds, by about $50 billion.

That's the anomaly. The math says come home, but most of the money hasn't moved.

Meanwhile, the U.S. 10-year yield hit 5.33% on Thursday, its highest since April 2002. America needs buyers more than ever. Its biggest foreign buyer now has a better offer at home.

I have no idea when the big move starts, or if it ever does. But Japan's life insurers publish fresh investment plans this month.

So this week, we're watching Tokyo.

This connects directly to the math that sent the money overseas in the first place.

For years, the choice was easy. Japanese bonds paid close to zero. A foreign bond paid more, even after an insurer paid to hedge the currency.

Now both sides have moved. The Bank of Japan raised its policy rate to 1.25% on September 18, the highest since 1995. The Fed hiked too, two days earlier, to 3.75%–4.00%.

So the hedge still costs roughly 2.6 points a year, while the home bond pays 3.10%.

In other words, the hedge has eaten the extra yield. For a life insurer that must hedge, the foreign bond has lost its edge.

Japan spent three decades building that trade. It no longer pays.

And here's where it spreads.

Analysts have predicted a big Japanese homecoming since the spring of 2025. The data keep failing to confirm it.

RBC calculates Japanese investors still bought about $50 billion more foreign bonds than they sold over the 12 months to late summer. A Deutsche Bank strategist said in August there was little sign of life insurers selling, and pension trusts were still adding overseas.

One reason is fear. Reuters reported last week that doubt over where Japanese yields will peak is holding back a larger move. If you buy a Japanese bond at 3% and yields rise to 3.5%, you lose money right away.

Everybody is waiting for someone else to go first.

Foreign investors aren't helping. They sold a net ¥684.1 billion of Japanese medium- and long-term bonds in August, their third straight month of net selling.

Meanwhile, two things deserve a calendar alert.

First, Japan's big life insurers publish their investment plans twice a year, around April and October. The plans say how much goes home versus abroad, and how much they hedge. Historically, they've moved markets more than any strategist's note.

Second, the government is leaning on its giant pension fund. Finance Minister Satsuki Katayama said Tokyo would look for ways to push pension funds, including the $1.8 trillion GPIF, toward Japanese assets. Today GPIF splits its money roughly evenly between domestic stocks, foreign stocks, domestic bonds and foreign bonds.

Traders have already turned. In the first two weeks of September, speculators flipped from a deep bet against the yen to a $9.7 billion bet on it, the largest since July 2025. In July, the yen had come close to 164 per dollar, near a four-decade low.

The money is still away. The pressure to bring it home keeps building.

Three more things worth keeping track of…

Britain's budget rests on an old yield. The Office for Budget Responsibility's March forecast assumed 30-year gilt yields of 5.1%. On September 1, they touched 5.921%, the highest since 1998. The chancellor presents the budget on October 28. Every extra point of yield makes the numbers harder to balance.

Three indexes had three different Septembers. The Dow fell 4.3% for the month. The S&P 500 slipped 0.4%. The Nasdaq rose 1.9%. Same economy, same yields, very different results. That's interesting.

Bitcoin beat gold. MarketWatch noted that bitcoin rose about 7% in September and traded above $86,000, while gold had a rough month. Gold futures traded near $4,212 an ounce on Thursday. For now, part of the market is treating crypto as the inflation hedge instead. We'll see.

In 1989, Japan bought America.

It only felt like all of it. In September, Sony paid $3.4 billion for Columbia Pictures. A few weeks later, Mitsubishi Estate paid $846 million for 51% of the company that owned Rockefeller Center. That meant Radio City Music Hall, the Rockettes, and the skating rink.

Critics called it an invasion. Between 1985 and 1993, Japanese companies put about $77.3 billion into the United States. In 1990 alone, Japan put more than $13 billion into American real estate.

Then the money turned around. Japan's own bubble burst, and U.S. property prices fell. By 1993, Japanese investment in American real estate had dropped to $710 million.

Money that arrives in a rush tends to leave the same way.

By then, Mitsubishi had paid about $1.4 billion for 80% of the complex. In May 1995, it filed for bankruptcy protection on Rockefeller Center. The Rockefellers said it had lost $600 million.

In the end, Mitsubishi walked away from roughly $2 billion of investment. A group led by Goldman Sachs took the complex, at a value of nearly $1.2 billion.

David Rockefeller had sold it to the Japanese. He then joined the group that took it back.

Big money moves slowly. Then it moves all at once. We'll see.