Bloomberg estimates that as of July 2026, Japanese investors will hold approximately 23 trillion yen (equivalent to $145 billion) in French bonds, representing 6.6% of their overseas bond holdings, making it the Eurozone market with the largest overweight position relative to global bond benchmarks. With the French fiscal deficit and political gridlock triggering a sell-off, the yield on French 10-year government bonds has approached 5%, a new high since 2002; however, Japanese bond yields are also rising. After accounting for the euro-yen exchange rate hedging costs, the yield on French bonds to Japanese investors is approximately 3.3%, with an advantage of only about 40 basis points relative to domestic bonds, insufficient to fully compensate for the risks of French fiscal and price volatility.
Sumitomo Mitsui DS Asset Management's global fixed-income team has already liquidated its holdings of French government bonds, shifting to German government bonds and Japanese short-term bonds.
This does not necessarily mean a collective withdrawal of Japanese funds, but if more funds flow back to Japan, France will not only face rising credit risk premiums but may also simultaneously lose key marginal buyers.
