JGBs likely to trade narrowly mixed ahead of 10-year auction; investors eye month end BoJ decision

The Japanese government bonds are expected to trade narrowly mixed ahead of 10-year JGB auction. Major markets are back today all over the Asian centres except for New Zealand and Japan. The market will open on Wednesday, January 4 for half day trading.

The benchmark 10-year bond yield, which moves inversely to its price, closed at 0.04 percent on Friday, December, 30 last trading day of 2016. We foresee that bond prices will keep drifting between small gains and losses in quiet trading session. Also, trading activity to resume from the second week of January, 2017 as global market receives no more important data till then.

The Bank of Japan in its December two-day monetary policy meeting’s summary of opinions mentioned that under the framework of yield curve control, the yield curve has been formed smoothly in a manner consistent with the guideline for market operations. The Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control has been functioning as intended thus far, and is contributing to economic recovery and price increases.

Additionally, the central bank should conduct market operations so that 10-year Japanese government bond (JGB) yields are kept at zero percent. The current situation presents a good opportunity to achieve the price stability target of 2 percent.

However, one of its members voted against keeping 10-year bond yields at zero percent and suggested to allow long-term interest rates to increase if such moves reflected improvements in the economy.

Lastly, the BoJ’s first two-day monetary policy meeting for 2017 will take place on January 30-31. We foresee that the central will remain committed to hold its 10-year JGB yields near zero, while keeping interest rate steady at -0.10 percent.

JGB Technical Assessment: Momentum: Weekly Bearish

With a break below 150.00, which lead the price to 149.00 followed by 148.00 further out. The pair may stall around the price 150.00. Back above 152.00 will force to revalue.

Analysis Bias

1-Week Objective: down to 149.00 Conviction: Strong

4-Week Objective: DOWN to 147.00 Conviction: Weak

Resistance 3:                   153.000  **

Resistance 2:                   152.000  **

Resistance 1:                   151.500  **

03-Jan                              LAST   150.260

Support 1:                        149.000  *

Support 2:                        148.000  *

Support 3:                        147.000  **