Big international investors are nibbling at beaten‑down Japanese government bonds after 10‑year yields surged above 2.5 per cent, the highest this century, but most remain cautious. The sell‑off, driven by rising rates, massive fiscal stimulus and inflation fears, has made Japan the worst‑performing major bond market, with yields jumping 1.6 percentage points since early 2025. "We have been dipping our toes into long‑end JGBs, but quite small clips," said Ranjiv Mann of Allianz Global Investors, adding he wants a clearer hawkish signal from the Bank of Japan before scaling up.

The memory of the historic "widow‑maker" trade—where shorts on JGBs were crushed by years of negative rates—makes managers fear the opposite bet could be equally perilous. If Prime Minister Sanae Takaichi’s $2tn spending plan fuels inflation and the BoJ lags on tightening, a fresh wave of selling could overwhelm new buyers. Insight Investment’s April La Russe said, "No one wants to be first in the pool."

A potential catalyst is the $1.8tn Government Pension Investment Fund (GPIF). Analysts estimate a shift to the maximum 31 % domestic‑bond allocation could inject ¥12tn ($75bn) into the market, but the GPIF insists it will not use reserves to influence policy. Recent 30‑ and 20‑year auctions showed strong demand, yet managers like Fidelity’s Terrence Pang and Carmignac’s Kevin Thozet stay underweight, citing fiscal uncertainty and the 200 per cent debt‑to‑GDP ratio.