A Japanese fund's French bond sell-off and Thursday's data loom over Bitcoin

A Japanese investment fund shed its entire portfolio of French sovereign bonds amid the current crisis in the country's debt market. Data due from Japan on Thursday will be the first official sign of whether other domestic investors followed suit.

Bitcoin (BTC) and Ethereum (ETH) dropped by up to a fifth during the 2024 yen shock, hinting that the implications this time around could stretch further than just France.

France's Borrowing Costs Hit Highest Level Since 2002

The global bond team at Sumitomo Mitsui DS Asset Management, run by Shinji Kunibe, offloaded all its French government holdings. The proceeds were put toward German bonds and short-term Japanese paper. The value of the sale was not made public.

The decision was driven by fears over France's fiscal health. The country carries debt equal to some 119% of its annual GDP, while its 10-year yield reached 4.96% last week, a peak not seen since 2002.

“When the bid from Japan disappears, the largest European sovereign market has to find new buyers at the same time its own government is arguing over a deficit plan that markets already distrust,” Stern Drew, a commodities expert, said.

Drew argued that Japan may have already fractured the French sovereign debt market.

Despite this, France has not exhausted its buyer base. Around €12 billion in long-dated bonds were auctioned on October 1, drawing bids worth roughly double that sum, the French debt agency reported.

What Tokyo's Thursday Data Is Set to Show

The Ministry of Finance in Japan is releasing its weekly trading figures at 8:50 a.m. Tokyo on October 8, according to its published calendar. The report covers the activities of the nation's largest banks, insurers and asset managers.

The previous report, which closed on September 26 — shortly ahead of Kunibe's move — already pointed to significant liquidations. Japanese investors offloaded a net ¥684.5 billion ($4.3 billion) in foreign bonds during that week, following ¥1.9 trillion ($12 billion) in net sales the week prior, ministry figures show.

There is a limitation, however. France is never singled out in the data; all international bonds are combined into a single bucket.

Why Digital Asset Traders Are Watching Tokyo

For some time, market participants borrowed yen at low rates to purchase higher-yielding overseas assets, a technique known as the yen carry trade. A spike in the yen makes these loans more expensive, often forcing holders to sell their positions.

These trades were sized at roughly $250 billion by the Bank for International Settlements just before the market crash of August 2024.

Bitcoin has weathered one yen shock since then. When the Japanese currency appreciated by 3.7% over a few days in September, the cryptocurrency held steady above $79,000, BeInCrypto noted.

BeInCrypto's BTC price tracker showed the digital asset trading at $85,363 on Sunday, a 0.46% increase over the preceding 24 hours.

Stern Drew contends the French bond market is already broken by Japan's actions. The official Japanese data on Thursday will deliver its own verdict.