Japanese investors reduce their exposure
France borrows more heavily from abroad than most major economies, with Japan a particularly important source of funding. European Union data show that investors outside France owned almost 55% of its debt last year, compared with foreign ownership of 31% for U.S. debt and 13% for Japanese debt.
The incentive for Japanese institutions to invest in France has narrowed. After currency hedging, French debt offered only about 40 basis points more than Japanese government debt, according to Bloomberg data cited by BigGo Finance on October 18. Japanese holdings of French bonds had fallen about 2.5% since the end of 2025. As of July 2026, those holdings totaled roughly 23 trillion yen, or about $145 billion, representing about 6.6% of Japan's overseas bond investments.
One asset manager has withdrawn entirely from French government bonds in some funds. The World Socialist Web Site reported on October 6 that Sumitomo Mitsui's global fixed income funds had sold all their French government bonds and invested the proceeds in German bonds and short-term Japanese government bonds.
In an October 9 report, Allianz Research described France as the first victim of the Japanese repatriation trade. Its figures put Japanese ownership at about 5% of outstanding French government bonds, or roughly EUR 137 billion. Foreign banks and non-bank investors together held 36%.
Higher yields meet a growing financing bill
France has experienced the largest increase in 10-year government bond yields among major developed economies since the Hormuz crisis began, according to Allianz. French yields rose 150 basis points over that period, versus 132 in Italy, 115 in the U.S. and 83 in Germany.
The rise comes as France's fiscal position deteriorates. Allianz put public debt at more than 119% of GDP in the second quarter of 2026, up from 98% in 2019. The expected 2026 deficit has widened to 5.4% of GDP from an initial target of 5%, with annual deficits exceeding 5% for four consecutive years.
Figures from the Finance Ministry and Agence France Trésor, compiled by BigGo Finance on October 18, project interest costs of EUR 79.2 billion for 2026 and EUR 91.2 billion for 2027. The state's financing requirement for 2027 is EUR 339.7 billion.
The same compilation lists France's October sovereign ratings as Aa3 at Moody's, with a negative outlook, and A+ at both S&P and Fitch, with stable outlooks.
Longer-term projections also point to rising debt costs. Il Foglio reported on October 12 that the OECD had recently estimated French debt could reach 200% of GDP by 2050 unless spending is cut. Separately, a study commissioned by the French Finance Ministry projected a 59% increase in the cost of debt by 2030.
Unrest and the 2027 budget
The latest market pressure followed nationwide protests on October 17-18. Reporting published on October 18 put attendance at 550,000 according to the Interior Ministry, while the CGT union estimated 800,000. Prime Minister Sébastien Lecornu said more than 1,200 people had been arrested and 150 police officers injured. Fire largely destroyed the 143-year-old town hall in Limoges.
Lecornu's proposed 2027 budget calls for a EUR 54 billion fiscal effort, including EUR 43 billion in new measures, according to the October 18 report. France's High Council of Public Finance judged the government's forecast of 1% growth in 2027 to be optimistic.
The legislative timetable reported on October 18 scheduled an initial National Assembly vote for October 20 and a first-reading vote on the full budget for November 17.
