TOKYO: Japanese government bond (JGB) futures edged higher on 5 February, drawing some support from a dip in Tokyo share prices and gains in U.S. Treasuries.
Gains were limited, however, by lingering fears that the Bank of Japan (BoJ) could raise interest rates this month, and caution ahead of events later this week including a five-year bond offer, machinery orders data and a Group of Seven meeting.
“JGBs are being bought back a bit as U.S. Treasuries were pretty stable after the U.S. jobs data and because the Nikkei is seeing some selling,” said Naomi Hasegawa, senior fixed income strategist for Mitsubishi UFJ Securities.
But market sentiment isn’t particularly strong at this point, Hasegawa said.
“The mood seems to favour buying on dips but there is no clear sense of direction either in the market as a whole or with regard to the yield curve. Traders seems to be looking for fresh trading incentives,” Hasegawa said.
March 10-year JGB futures rose 0.07 point to 134.24 at the end of the morning session. Trading volume was a sparse 11,949 contracts.
The benchmark 10-year JGB yield eased 0.5 basis point to 1.720% as of 0209 GMT, while the two-year yield was flat at 0.750 %.In the stock market, the Nikkei share average fell 0.91%.
U.S. Treasuries inched higher on 2 February after a mixed jobs report reaffirmed investors’ views that the Federal Reserve would keep interest rates steady.
JGBs had fallen on 2 February, hurt by lingering fears that the BOJ could raise interest rates by 25 basis points to 0.50% at its 20-21 February policy meeting.
The JGB yield curve flattened last week as investors sold shorter-dated notes, partly due to speculation related to a meetin of G7 finance ministers and central bankers in Essen, Germany, on 9-10 February.“There was talk that there could be an expression of concern against yen weakness at the G7 and that this may lead to a BOJ rate rise,” said Hasegawa at Mitsubishi UFJ Securities.
But market players are sceptical that any foreign criticism of the weak yen could influence the BOJ and doubt that anything drastic will emerge from the G7 meeting.European officials have sought to make the yen’s weakness a major topic of discussion at the G7 gathering, but Japanese and U.S. officials have played down the focus on the yen.
The yen has sunk to a succession of record lows against the euro over the past year, mainly due to Japan’s low interest rates, and hit a record low of 158.62 yen to the euro in January.A weak yen against the euro can increase the trade competitiveness of products sold by Japanese exporters compared with goods sold by European companies.