JGBs flat as markets await US employment report for Fed clues

The Japanese government bonds traded nearly flat on Friday as traders awaited U.S. non-farm payrolls later in the day in an attempt to estimate the Fed's likely next step to raise interest rate. The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to -0.100 percent, yield on super-long 40-year bonds also dipped ½ basis points to 0.400 percent and short-term 2-year bonds yields hovered at -0.240 percent by 07:00 GMT.

The US May Labor Department employment situation report will be released today at 12:30 GMT. We expect non-farm payrolls will increase +180k in May, on the contrary, the market is expecting an increase of +165k, as compared to +160k reading seen in April, alongside a decrease in the unemployment rate to 4.9 percent, investors consensus are for a 4.9 percent result. Moreover, the focus will likely be paid to gains in total private employment which we expect will increase around +175k. Beyond the headline, we expect average hourly earnings will increase +0.2 percent m/m, alongside no change in weekly hours of 34.5. On balance, despite the notable weakness seen in recent months, we anticipate further improvement taking hold in the coming months as conditions gradually improve.

On Wednesday, Japan Q1 capital spending rose 4.2 percent y/y, higher than the market consensus of 2.4 percent, from 8.5 percent in the last quarter. Moreover, capital spending- excluding software rose 4.3 percent y/y, against market anticipation of 4.0 percent, from 8.9 percent in the previous quarter. On the other hand, company profits fell 9.3 percent y/y from prior -1.7 percent. Company sales, however, fell 3.3 percent y/y from last quarter's -2.7 percent and Nikkei Japan May (final) manufacturing PMI fell to 47.7 (preliminary was 47.6) from 48.2 in April.

In addition, Japanese PM Shinzo Abe came out on the wires via Bloomberg and finally announced his decision on the sales-tax hike postponement this Wednesday. PM Abe decided to delay sales tax increase by 2.5 years, as widely speculated by the markets participants.

Meanwhile, the benchmark Nikkei 225 index closed up +0.48% at 16,642.23, and the broader Topix index inched higher 0.41 percent to 1,337.23 points by 07:00 GMT.