Japan Ultra-Long Bond Yields Exceed 4%, Eastspring Investments Says "Reverse Carry Trade" Opportunity Emerging
nashnova research
Japan's 30-year government bond yield has broken 4%, offering 100–200 basis points above equivalent developed-market bonds after FX hedging; Eastspring Investments says the traditional yen carry trade is fading and a reverse carry window is now open.
What is the "reverse carry" trade, and why now?
The classic yen carry trade — borrow cheap yen, buy higher-yielding foreign assets — is losing its edge as the Bank of Japan keeps raising rates and yen funding costs climb.
The reverse carry flips the direction: buy Japan's ultra-long bonds (now yielding above 4%), then hedge the yen exposure back into dollars or another currency. This means → investors pocket the gap between Japan's bond yield and their home-currency equivalent.
Eastspring fixed-income portfolio manager Rong Ren Goh told the Reuters Global Markets Forum: "Whether in US dollars or any other developed-market currency, FX-hedged yields are 100 to 200 basis points above benchmark-currency equivalent bonds."
Why is Japan's yield curve so much steeper than everyone else's?
The spread between Japan's 2-year and 30-year government bonds now exceeds 200 basis points; the same maturity spread in other core developed markets averages roughly 80 basis points, and most curves are flattening.
In plain terms = Japan's short end is still relatively low while the long end has surged past 4% — the curve is more than twice as steep as its peers.
This reflects a repricing of Japan's long-term fiscal outlook and inflation expectations — and that steepness is precisely the spread gap offshore investors can harvest.
Why is the traditional yen carry trade losing appeal?
Markets expect the BOJ's policy rate to rise from the current 1.25% to roughly 2% over time, reshaping the long-run economics of yen-funded positions.
Last week the Fed and the BOJ raised rates within two days of each other; the BOJ hiked by 25 basis points, but two board members dissented — a signal the market read as dovish.
The yen weakened briefly, then steadied after authorities conducted rate-check inquiries in the FX market; as of the report date, the yen had appreciated about 1.2% against the dollar for the month. This means → borrowing costs in yen are rising and the currency is no longer a one-way bet downward — the traditional carry is squeezed on both sides.
How is Eastspring positioning?
Eastspring, which manages $291 billion, is adding shorter-duration dollar-denominated bonds while gradually building exposure at the ultra-long end of Japan's yield curve.
The firm is focusing on high-grade corporate bonds and Samurai bonds — yen-denominated bonds issued in Japan by foreign governments or corporations — to layer credit spread on top of sovereign yields and amplify carry returns.
On yen positioning: Eastspring was underweight in early 2026 on fiscal and monetary uncertainty, then shifted to neutral around August as the risk of currency intervention rose.
Can this trade last — what is the key test?
Goh expects the reverse carry trade to gain broader acceptance as investors grow more confident that Japanese bond prices are stabilising.
Japan's bond market has been through a sustained sell-off since 2022; whether prices truly stabilise is the critical verification point for this trade thesis.
In plain terms = the spread is there, but if Japanese bond prices keep falling, capital losses eat the carry — "do prices hold?" is the ultimate gate.
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