JGBs remain lower on higher risk appetite; investors eye Fed’s last policy decision for 2016

The Japanese government bonds traded lower Tuesday as investors moved away from safe-haven buying amid gains in riskier assets including crude oil and equities.

The benchmark 10-year bond yield, which moves inversely to its price, rose 1 basis point to 0.08 percent (highest since February) and the yield on short-term 3-year note also climbed 1 basis point to -0.13 percent by 06:30 GMT.

The JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Crude oil prices rose after OPEC and non-OPEC countries agreed to cut production for the first time since 2001. The International benchmark Brent futures rose to $55.73 and West Texas Intermediate (WTI) climbed to $54.07.

Markets will remain focused on the Federal Reserve last monetary policy decision for 2016, which is scheduled to be released on December 14. The Federal Reserve is expected to increase the target range of the key interest rate by 25 basis points to 0.50-0.75 percent, with a unanimous decision. Little change to the statement, though the Committee is likely to acknowledge that market-based measures of inflation compensation have risen further.

According to a Bloomberg report, the Bank of Japan has considered drifting away from the quantitative easing program for monetary stimulus. Although the central bank's policymakers have retained their 80 trillion yen bond buying forecast intact on an annual basis, the market is anticipating for a drop to 70 trillion yen. The new yield-curve control framework is aimed at short and long-term interest rates.

The BoJ might upgrade its economic outlook at its next meeting on the 20th, based on improving global trade and private consumption. This would imply a less-dovish policy bias as well, Reuters reported.

Meanwhile, the benchmark Nikkei 225 closed 0.50 percent higher at 19,250.52 (highest since December last year). While at 07:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index stood neutral at -37.74 (lower than -75 represents bearish trend).