Japanese Bonds Steady in Subdued Trade
The Japanese government traded nearly flat on Tuesday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. Moreover, future course in bond prices are likely to be ruled by the movements in the crude oil market. The yield on the benchmark 10-year bonds, which moves inversely to its price, remained unchanged at -0.092 percent and the yield on short-term 2-year bonds hovered at -0.230 percent by 0455 GMT.
The Japanese bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Crude oil prices fell on firm global supply, a stronger dollar and surging output from Iran to Europe and Asia. Yesterday, Iranian deputy oil minister quoted that Iran plans to increase oil export capacity to 2.2 million barrels by the summer and has no plans to freeze its level of oil production and export. The International benchmark Brent futures fell 0.50 percent to $48.11 and West Texas Intermediate (WTI) dipped 0.42 percent to $47.88 by 0455 GMT.
According to latest Reuters report, the BoJ is not expected to buy JGBs under its massive JGB purchase program, as the MoF offers JPY500 billion in off-the-run 10-year, 20-year and 30-year JGBs maturing in around 5-15.5 years to improve the liquidity.
The BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility. Further, 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 pct at year-end.
The markets will now focus on G7 meeting to be held in Japan on May 26-27, April National CPI on Thursday (2330 GMT) and BoJ’s own core CPI figure on Friday (0500 GMT). Meanwhile, the benchmark Nikkei 225 index was trading down 0.93% at 16,499, and the broader Topix index inched lower 0.89 pct to 1,327 points by 0455 GMT.