The yield on German bunds has risen above UK gilts for the first time since 2009 after Japan shifted out of bunds overnight following Germany's disastrous debt auction.
Ratings agency Standard & Poor's (S&P) has warned Japan could face a downgrade over its inability to reduce its debt pile.
Positive economic data from Japan, US and China boosts fund manager's confidence in the global economy
Japan's economy rebounded in the third quarter, growing for the first time since the catastrophic earthquake in March.
Japan has intervened to weaken the yen for the second time in three months after the currency hit a fresh record high against the dollar.
The yen climbed to a post-World War II high against the dollar yesterday, after Europe's debt crisis spurred demand for safe havens.