JGBs little changed in lackluster trade; investors eye U.S. non-farm payroll

The Japanese government bonds traded nearly flat Friday as investors refrained from engaging in bulky trading activity following a day of little significant data.

Markets now await the United States non-farm payroll data which could go a long way in bolstering calls for some policy action before year-end as the Federal Reserve remains supported by further improvement in employment conditions alongside gradually warmer inflation readings.

The yield on the benchmark 10-year bonds, which moves inversely to its price, hovered around -0.056 percent mark, the yield on long-term 40-year note remained steady at 0.58 percent and the yield on short-term 2-year bonds stood flat at -0.27 percent by 05:10 GMT.

The September Labor Department employment situation report will be released on Friday at 12:30 GMT. Overall, we expect non-farm payrolls will increase +180k in September (market expectations are for a +175k increase), versus the +151k reading seen in August, alongside no change in the unemployment rate of 4.9% (market expectations are for a 4.9% result). Great focus will likely be paid to gains in total private employment which we expect will increase around +170k.

Beyond the headline, we expect average hourly earnings will increase +0.2% m/m, alongside an increase in weekly hours to 34.4. On balance, despite the volatility seen in recent months, we anticipate further improvement taking hold in the coming months as conditions gradually improve. Given the greater focus on what the Fed is likely to do next following liftoff in December, we anticipate the September employment report will be sufficiently strong enough to justify additional moves higher (though other factors and subsequent reports will likely keep policymakers second-guessing).

Moreover, Bank of Japan governor Kuroda said that they do not expect to run out of JGBs to purchase for QE and buying foreign currencies is for the government to decide. Said the BOJ is prohibited from directly underwriting government debt and BOJ's QE will not lead to hyperinflation.

Further, Kuroda in its previous comments said that the bank still has a lot of room left to ease policy. On the other hand, Bank of Japan ex-board member Nobuyuki Nakahara to aide Japanese PM Abe said that the BoJ's yield curve control and negative rates are mistakes. He added that the central bank Governor Kuroda has ruined his chance of a second term.

Meanwhile, the benchmark Nikkei 225 traded down 0.34 percent at 16,842 and the broader Topix index traded 0.47 percent lower to 1,347.49 points by 05:10 GMT.