A fund manager at Azimut Group sees Japanese government bonds as one of the most appealing risk-reward opportunities for global fixed-income investors, defying the market's current bearish sentiment.

Nicolo Bocchin, the Dubai-based global head of fixed income at the asset manager overseeing $180 billion in assets, is making a bold wager that the Bank of Japan will not proceed with aggressive rate hikes. He believes traders are overestimating the country's inflation trajectory.

"I am a buyer of long-dated Japanese government bonds, and I am very optimistic about their outlook," Bocchin stated in an interview on Monday. "The long end of the yield curve is highly attractive."

This view stands in stark contrast to the dominant market consensus. Investors have been driving Japanese long-term bond yields to multi-decade highs, fueled by expectations of sustained inflation, widening fiscal deficits, and the central bank’s gradual withdrawal from the bond market. Last week, the yield on the 40-year Japanese government bond briefly touched 4.01%, nearing the historical record of about 4.355% set in May.

Alongside the bond sell-off, the yen has weakened, hovering near four-decade lows around 164 yen per US dollar.

Bocchin argues that these risk factors are already fully priced into current Japanese bond valuations. While Japan is finally experiencing inflation after decades of deflation, the annual inflation rate remains below 2%, and policymakers have repeatedly stressed that preventing a return to deflation is a top priority.

"You have to question why the market is so determined to push Japan into raising rates," Bocchin commented. "For a highly leveraged country, inflation is actually a blessing."

Azimut also expects domestic policy to provide support for the market, including a potential expansion of tax-advantaged savings programs like the Nippon Individual Savings Account (NISA) to cover Japanese government bonds. Earlier this month, Finance Minister Satsuki Katayama also urged major domestic institutions, including the $1.81 trillion Government Pension Investment Fund, to increase their allocation to domestic assets.