Japan Shifts Away from U.S. Debt as Domestic Yields Rise

Japan sold $29.6 billion in U.S. Treasury securities during Q1 2026, marking its first quarterly net sale since Q4 2024. This ends an 11-quarter buying streak as rising domestic yields lure investors back home. The 10-year Japanese Government Bond yield hit 2.73%—the highest since 1997—with markets pricing in a 25bps rate hike to 1% in June.

The selloff concentrated in agency debt ($4.14 billion liquidated in January-February) and municipal bonds. While Japan remains the largest foreign holder of U.S. debt at $1.24 trillion, the shift reflects recalculations after February's rate repricing. Traders initially expected Fed cuts before geopolitical tensions reversed forecasts toward hikes.

This capital rotation from traditional debt instruments may create spillover demand for alternative stores of value. Cryptocurrencies often benefit when sovereign debt markets experience volatility or diminishing returns.