JGBs narrowly mixed on disparate economic data; BoJ balances daily money market operations

The Japanese government bonds traded narrowly mixed Wednesday following stronger-than-expected retail sales, contrasted by a decline in consumer inflation and household spending. Also, long-term bonds traded marginally down as the Bank of Japan balanced its daily money market operations.

The benchmark 10-year bond yield, which moves inversely to its price, fell nearly 1 basis point to 0.05 percent, the long-term 30-year bond yields bounced 2 basis points to 0.70 percent and the yield on short-term 2-year note slid nearly 1 basis point to -0.15 percent by 06:30 GMT.

Japan’s industrial production increased 1.5 percent in November from a month earlier (forecast +1.7 percent). The output is forecasted to rise 2 percent in December and 2.2 percent in January, data released by the Ministry of Economy, Trade and Industry (METI) showed Wednesday.

Additionally, country’s retail sales were up a seasonally adjusted 0.2 percent on month in November, data released by the Ministry of Economy, Trade and Industry showed Wednesday. That beat forecasts for a decline of 0.5 percent, although it was down from the 2.5 percent spike in October.

Also, the BoJ purchased 110 billion yen of JGBs with over 25 years left to maturity and 190 billion yen of JGBs with between 10 and 25 years left to maturity on Wednesday.

Moreover, Japan’s consumer prices in November rose 0.5 percent y/y, accelerating from the 0.1 percent gain in October. But CPI, which excludes food prices, declined 0.4 percent y/y for the second straight month.

Additionally, country’s unemployment grew to 3.1 percent in November, from 3 percent in October and the household spending declined 1.5 percent y/y in November, as compared to previous -0.4 percent.

On Monday, the Bank of Japan (BoJ) in its November 31-December 1 meeting minutes mentioned that the yield curve for JGBs had been formed smoothly in line with the guideline for market operations since the previous meeting. The central bank purchased JGBs so that 10-year JGB yields would remain at around zero percent. Also, some members noted that market developments in the intermeeting period showed that the new framework had been perceived in a calm manner by market participants.

Additionally, members discussed the Bank's conduct of outright purchases of JGBs under yield curve control. Most members shared the view that it was appropriate that the Bank continue to conduct JGB purchases aiming to achieve the target level of the long-term interest rate specified by the guideline for market operations while keeping the guideline of the approximate amount of JGBs to be purchased -- that is, an annual pace of increase in the amount outstanding of the Bank's JGB holdings of about 80 trillion yen.

In addition, at the monetary policy decision released last Tuesday, the majority of the policy board members of the Bank of Japan (BoJ) decided to keep its benchmark interest rate unchanged at record low of -0.10 percent. The BoJ in its policy statement noted that it will purchase Japanese government bonds so that 10-year JGB yields will remain at around zero percent.

Also, with regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.

Lastly, trading activity to resume after New Year celebrations, probably from the second week of January, 2017 as global market receives no more important data till then.

Meanwhile, the benchmark Nikkei 225 closed flat at 19,401.72. While at 07:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index remained slightly bearish at -85.41 (lower than -75 represent a bearish trend).