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(Bloomberg) -- Japanese investors expect the nation’s benchmark 10-year government bond yield to climb as high as 2% this year in a move that looks likely to relegate China’s sovereign debt to the lowest yielding of major markets.

That would be a startling turnaround for Japan’s once moribund market — which for years was synonymous with negative rates — and another sign of the challenge China faces with low inflation.

After a surge to 1.5% this week in the wake of dramatic changes in Germany’s debt market, Japanese investors see global trends and further interest rate hikes from the Bank of Japan pushing yields higher in Tokyo.

Inflation and Japan’s potential growth rate mean that the country’s long-term bond yields, which have remained low compared to Europe and the US, will near 2% by December, said Masayuki Koguchi, executive fund manager at Mitsubishi UFJ Asset Management Co.

A move toward 2% for 10-year yields would reverse the trend with China, where equivalent rates are hovering around 1.7%. It also means that investors who have foregone active management of Japanese government bonds may need to change their strategies.

China’s benchmark 10-year yield fell to fresh record lows early this year, as investors flooded to the safest assets available amid bleak economic prospects, and on bets the central bank had to ease policy. That prompted Beijing to tighten liquidity to curb the rally.

Despite a selloff over the past two weeks, analysts argue that Beijing’s ambitious growth target for 2025 means monetary stimulus will eventually be rolled out and drive yields lower.

In Japan, “based on the nominal growth rate and the slope of the yield curve for the remaining two-, five-, and 10-year bonds, it will not be surprising to see long-term rates rise to 1.8% this year,” said Hiroshi Namioka, chief strategist at T&D Asset Management Co.

Ryutaro Kimura, bond strategist at AXA Investment Managers, is among those who expect that, like Germany, Japan has to assume that fiscal expansion will push the 10-year yield higher.

“Japan could be forced to increase defense spending under pressure from the Trump administration, which could force the government to issue more bonds,” Kimura said.

In preparation for the risk of a big jump in bond yields, traders in JGB futures are hurriedly switching their short positions in March contracts to those for June, with a significant increase in spread trading between the two.

When spreads between contract months narrow, “there will be a strong shift to sell positions” from domestic investors, Mitsubishi UFJ Asset’s Koguchi said.

--With assistance from Masahiro Hidaka, Mia Glass, Masaki Kondo and Tian Chen.