Major Japanese investors were wary in September of making large commitments to domestic bonds as rising yields and uncertainty over how far interest rates must increase complicated the case for bringing money home. By mid-October, bonds were attracting renewed attention after much of Prime Minister Sanae Takaichi’s first year was dominated by a preference for stocks, though that reassessment does not itself establish an unqualified willingness to buy. The distinction matters when assessing the outlook for Japan’s markets.

That uncertainty forms part of a backdrop that also includes signals from equities, currencies and government spending. The heads of Nomura and Daiwa expect the Nikkei stock average to reach 80,000 in 2026 or 2027, while Japan is considering a defence spending target of 3.5% of gross domestic product over 10 years. The yen, meanwhile, reached ¥156. Those figures frame the broader investment debate, but do not resolve the question of where domestic interest rates will settle.

The hesitation over bonds was evident in the September 26 assessment, when major investors remained reluctant to commit substantial amounts while yields were still increasing and the eventual extent of rate rises was unclear. By October 15, the preference for equities over bonds that had characterised much of Takaichi’s first year was being reconsidered as bonds became more appealing. These developments are not necessarily contradictory: an asset can become more attractive relative to alternatives without investors deciding that the moment has arrived for a large allocation.

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The September hesitation suggests that the prospective return of money to Japan involves more than a change in relative appeal. It highlights the question of whether investors have enough confidence in the rate outlook to act on that change. A willingness to examine domestic bonds is different from a decision to commit heavily to them. The caution recorded among major investors in September suggests that rising yields alone had not settled that decision, particularly when there were few clear indications of how much further rates might need to rise.

The policy debate offers little basis for assuming that the uncertainty has passed. On October 16, Bank of Japan board member Koeda warned against excessive caution in raising interest rates. That warning places concern about excessive caution on tightening alongside the earlier evidence of investors’ reluctance to make substantial bond commitments amid an unclear rate outlook. It does not establish how far rates will rise. For investors considering whether to increase domestic holdings, the September assessment highlights the importance of distinguishing the direction of policy from its eventual destination.

Currency movements provide another part of the backdrop.2%, its largest advance since September 7, and strengthened to ¥156. It performed better than every other Group-of-10 currency as Japanese officials described currency weakness as a problem. The move showed a stronger yen accompanying official concern, but was not itself evidence that major investors had overcome their reservations about domestic bonds or begun committing heavily to them.

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Fiscal policy presents a separate set of considerations. Japan was considering a new medium-term goal of lifting defence expenditure to 3.5% of gross domestic product over 10 years, according to the September 28 material. A government adviser argued that increased defence spending would not unsettle markets, offering a reassuring assessment of that prospect. The proposal nevertheless belongs to a different part of the investment outlook from the path of interest rates: reassurance over government spending does not, on its own, answer investors’ questions about the scale of further rate increases.

Equities also retain prominent supporters. The leaders of Nomura and Daiwa, Japan’s two largest securities firms, forecast on October 8 that the Nikkei would reach 80,000 in 2026 or 2027. Their outlook provides an equity-market perspective alongside the renewed appeal of bonds. Yet the executives also identified artificial intelligence as a potential threat to the stock-market rally. Their combination of optimism and caution underscores that the choice is not between an uncertain bond market and an equity market free of risks; both assessments carry qualifications.

Taken together, these assessments document a reassessment of bonds without establishing a settled change in allocations. Bonds have gained appeal, securities executives have forecast a Nikkei level of 80,000, and a government adviser has pushed back against concerns over higher defence expenditure. None of those positions establishes that the specific uncertainty restraining major domestic bond buyers in September has been resolved. Nor does renewed interest in bonds establish that the earlier preference for equities has been fully reversed. The strength of the investment case and the readiness to commit remain separate questions.

The September evidence suggests that what comes next may depend in part on whether greater clarity over rates accompanies the improvement in bonds’ relative attraction. Koeda’s warning keeps the debate over rate increases in view, while investors’ earlier hesitation highlights the importance of understanding their possible extent. For now, the evidence supports a cautious distinction: Japan’s bonds were receiving renewed consideration by mid-October, but the September assessment had found major investors reluctant to make substantial commitments while yields climbed and the destination for interest rates remained uncertain.