The Japanese government bonds traded modestly firmer on Monday after companies' inflation expectations fell slightly in June from three months ago, keeping the central bank under pressure for further stimulus.
The yield on the benchmark 10-year bonds, which moves inversely to its price fell ½ basis points to -0.253 percent, short-term 2-year JGB yield dipped to record -0.34 percent, JGB 5-year yield tumbled to record low of -0.375 percent, super-long 40-year bonds slid more than 1 basis point to 0.123 percent and the yield on 30-year JGB slid 1 basis point to 0.095 percent by 05:45 GMT.
According to the Bank of Japan Tankan survey showed that firms' one-year inflation forecast fell to +0.7 percent in June, as compared to +0.8 percent in the first quarter of 2016. This is the 4th consecutive quarterly downward revision in expectations from firms.
Moreover, Asahi press conducted a poll ahead of the coming upper house election and they showed that 55 percent said Prime Minister Shinzō Abe should rethink his economic policies and 28 percent said not. On 10 July Japanese voters will go to the polls in the triennial upper house election. The candidates will be all-too-familiar faces; the party leaders wooden and policy menus unpalatable. The contest is for only half the seats and voters are expected to either vote for the political status quo or not vote at all.
The outcome of the election will have little effect on the Abe government’s ability to pass the legislation. The ruling coalition of the Liberal Democratic Party (LDP) and Komeito holds a two-thirds majority in the lower house, with the ability to override the upper house. A great deal of attention has been paid both domestically and internationally to the chances of the ruling coalition securing 162 seats, and with that two-thirds majority in both houses the ability to amend the Constitution.
In addition, the BoJ may refrain from buying JGBs ahead of tomorrow's monthly 2.4 trillion yen of 10-year JGB auction. The MoF is widely expected to re-open the current issue for the regular settlement date in tomorrow's auction.
On Wednesday, the BoJ is widely expected to buy at least 430 billion of JGBs in the 5-year to 10-year zone. This evening, the BoJ is scheduled to release the detailed data of its JGB holdings as of June 30.
On Friday, Japan May consumer price index fell 0.4 percent y/y, against market consensus of -0.5 percent y/y, as compared to -0.3 percent in April. Also, national CPI excluding fresh food fell 0.4 percent, against investors’ expectations of -0.4 percent, from -0.3 percent in April. This spooked that the BOJ will ease further at its July meeting. The next BOJ two-day meeting is scheduled to take place on July 28 and 29.
Moreover, the BOJ in its own calculation mentioned that May core CPI rose +0.8 percent y/y, as expected, but lower than the previous +0.9 percent.
Japan May jobless rate stood flat at 3.2 percent, in the line of market consensus, from 3.2 percent in April. Also, Japan May job-to-applicant ratio rose to 1.36, marginally higher than the consensus for 1.35, from 1.34 in April. Also, May overall household spending fell 1.1 percent y/y, against investors’ expectations of -1.1 percent, from -0.4 percent in April.
Meanwhile, the benchmark Nikkei 225 index closed up +0.60 percent at 15,775.80, and the broader Topix index closed higher 0.60 percent to 1,261.97 points.
