BOJ Rate Hikes Create 'Reverse Carry' Trade in Japan Bonds, Eastspring Says

Rising Japanese bond yields are opening a "reverse carry" trade for overseas investors as Bank of Japan rate hikes erode the appeal of the traditional yen-funded carry trade, Eastspring Investments fixed income portfolio manager Rong Ren Goh said on September 23. Buying ultra-long Japanese government bonds and hedging yen exposure back into dollars or other developed-market currencies can yield 100 to 200 basis points above comparable home-market bonds, Goh told the Reuters Global Markets Forum. The 30-year JGB yield above 4%, when currency-hedged, exceeds base-currency equivalents, he said. The classic yen-funded carry trade is no longer a "no-brainer" with markets pricing Japan's policy rate to eventually reach around 2% from 1.25%. Positioning data showed net yen longs in the week to September 15 hit their highest since July 2025. The yen is up 1.2% versus the dollar month-to-date. Eastspring, which manages $291 billion, is adding shorter-dated dollar bonds while gradually building ultra-long JGB exposure via high-quality corporate and Samurai bonds.