Wall Street Says Japan Yield Curve Flattening Has Gone Too Far

Wall Street’s conviction trade on Japan’s bond market is starting to fray, with strategists arguing the sharp flattening in the yield curve after Prime Minister Sanae Takaichi’s election victory has gone too far.

Citigroup Inc. and Deutsche Bank AG have exited trades that had bet on shorter-term Japanese government bond yields rising faster than longer-dated ones, joining Societe Generale SA in signaling that the balance of risks now favors a renewed steepening instead. The shift comes after Takaichi nominated two new Bank of Japan board members seen as dovish on monetary policy and amid a media report that she voiced concern about further rate hikes.