Japanese investors sold a net ¥4.67 trillion ($29.6 billion) in US government, agency, and municipal bonds during Q1 2026, marking the largest quarterly reduction since 2022. The selling accelerated throughout the quarter, with sales reaching ¥3.42 trillion in February and ¥4.12 trillion in March. Japan remains the largest foreign holder of US Treasuries, with $1.203 trillion, but the recent sell-off represents a significant shift. The Bank of Japan's reduction in Japanese government bond purchases, which began in 2024, has led to higher domestic yields, encouraging Japanese investors to seek returns at home. This shift could impact US 10-year yields, potentially increasing them by 20 to 50 basis points, affecting mortgage rates and corporate borrowing costs. If the trend continues, annual outflows could exceed $100 billion, altering the demand landscape for US debt.