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The 10 year Japanese bond yield recently hit 2.92%, its highest since 1996. For decades it sat near zero and nobody wanted it.
Now foreign investors are piling in.
Japanese bond ETFs have taken in a record $1.5 billion in 2026 alone, nearly three times all of last year.
But this is not a simple win for Japan.
Higher yields mean Japan's government pays more to borrow.
With debt at 204% of GDP and 25% of the budget already going to debt servicing, every basis point higher makes the fiscal position worse.
The same rising yields that are attracting foreign money are slowly crushing the government that has to fund them.
And when a carry trade gets this crowded, history says the exit is never orderly.