If hedge funds and Japan dated, it might be called an on-again, off-again relationship.
Investors famously shorted Japanese government bonds, or JGBs, a few years ago but got burned; the bearish trade was dubbed the "widow-maker."
The next big play was a bullish one on local stocks rising and the yen falling, which made tons of money in 2013. But many of the same hedge funds got burned early this year when that "reflation" trade reversed.
Despite those ups and downs, hedge funds are now more in love with Japan than at any time in the last decade. Managers surveyed by Bank of America Merrill Lynch from Nov. 7 through Nov. 13 found that they had the most positive outlook on Japan since 2005 and the country is the most-favored investment region for the coming year.
"Japan is the flavor of the month," said V-Nee Yeh, an investor in hedge funds through Hong Kong-based Cheetah Investment Management.