Japanese Long Term Debt Climbs on Weak BoJ's Q1 Tankan Report
The Japanese long term debt rallied on Friday after the Bank of Japan's quarterly Tankan report disappointed market as it will put more pressure on policymakers to unleash another round of stimulus in the upcoming policy meet. The headline index for big manufacturers' sentiment in March stood at plus 6, down from up 12 seen three months ago as compared with the median estimate of +8 in a Reuters poll of economists.
The Japanese long term government bonds rallied, with the yield, which moves inversely to price, on the benchmark 10-year JGB down 2.9 bps to -0.058 pct and 40-year JGB dipped 8 bps to 0.49 pct.
“The pronounced drop in the headline index of today’s Tankan survey underlines that the recent strengthening of the yen has damaged business confidence and suggests that the Bank of Japan will announce more easing later this month,” said Marcel Thieliant at Capital Economics.
Moreover, the BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility.
We expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 percent at year-end.
But the JGB market would be extremely fragile, once Japan's CPI rises more than 2% on a year-over-year basis in the near future. At that time, the BoJ would be the most vulnerable victim as the largest holder of JGBs as the central bank has promised that they will continue to buy JGBs even at deep negative yields.
Apart from this, the Bank of Japan announced the following results for its Japanese government bonds with residual maturities of more than 5-years and up to 10-years buying operation.
The material has been provided by InstaForex Company - www.instaforex.com
