Monetary Normalization and Institutional Portfolio Reallocation in Japan

Abstract

I show that domestic government-bond acquisition coexisted with continued overseas investment and changes in external investment form during Japan’s monetary normalization. Monthly transactions, quarterly financial accounts, domestic bond trades and company disclosures document the adjustment over 2024Q2–2026Q2. Banks recorded 45.01 trillion yen of net government-security acquisition and positive foreign-security transactions, while their net claims on the central bank fell by 48.65 trillion. Investment trusts’ net foreign-security acquisitions of 20.09 trillion comprise 12.99 trillion of proportional expansion and 7.09 trillion of additional allocation. Life insurers combined net foreign-security sales with additions to direct investment and other external claims; the narrower securities-plus-direct-investment balance depends on a concentrated acquisition quarter. Company records connect these sector patterns to investment mandates, currency contracts and bond replacement. Within one insurer, asset–liability management and balanced mandates move Japanese government bond holdings in opposite directions. Replacement trades change duration and future income objectives while recognizing disposal gains or losses. Historical yield regressions relate allocation to specified asset-yield and hedge conditions; their statistical strength varies with horizon, sample and dependence assumptions. Joint Japanese/global rate equations distinguish current-month short-debt adjustment from a delayed equity-and-fund margin. These results locate Japan’s portfolio adjustment in the institutions’ joint asset and funding decisions and in the type of external claim acquired.

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