JGBs remain steady in thin holiday trading, investors shrug off mixed CPI figures

The Japanese government bonds traded nearly flat Tuesday as investors remain sidelined in any big deal as many major global markets are closed for a holiday. We foresee that the bond prices will keep drifting between small gains and losses in quiet trading session.

The benchmark 10-year bond yield, which moves inversely to its price, hovered around 0.05 percent, the long-term 30-year bond yields stood flat at 0.69 percent and the yield on short-term 2-year note remained steady at -0.17 percent by 04:00 GMT.

Also, investors did not react to the mixed bag of consumer inflation data from the Ministry of Internal Affairs and Communications. 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.

Moreover, 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.

Additionally, 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.

Meanwhile, the benchmark Nikkei 225 traded 0.14 percent lower at 19,401. While at 05:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index remained highly bullish for second straight day at +118.10 (higher than +75 represent a bullish trend).