JGBs trade modestly lower following gains in equities, investors shrug off lower-than-expected Q4 GDP

The Japanese government bonds traded modestly lower Monday, tracking gains in the country’s benchmark index. However, investors have largely shrugged off the lower-than-expected Q4 gross domestic product (GDP), released early today.

The benchmark 10-year bond yield, which moves inversely to its price, rose nearly 1/2 basis point to 0.09 percent, the long-term 30-year bond yields rose 1 basis point to 0.86 percent and the yield on the short-term 2-year note also traded 1/2 basis point higher at -0.20 percent by 05:40 GMT.

The Japanese economy grew a steady 1.0 percent q/q (saar) in 4Q16 according to the preliminary estimate, slightly slower than 1.4 percent in 3Q16 but in line with the trend. As expected, growth driver mainly came from external demand. In the real terms, exports of goods and services grew a strong 11.0 percent in 4Q16.

Private non-residential investment also picked up (3.8 percent) as the exports-oriented manufacturers expanded capital spending last quarter. By contrast, private consumption growth stagnated at 0 percent, showing that domestic final demand remained very weak.

As a separate note, the Japan-US summit concluded over the weekend. Direct discussions about the sensitive trade and currency issues were avoided at this summit. Instead, the two sides agreed to establish a new framework for bilateral economic dialogues in future. Japanese Deputy Prime Minister Taro Aso and US Vice President Mike Pence will lead the talks under the new framework.

Meanwhile, Japan’s Nikkei 225 closed 0.41 percent higher at 19,458, while at 5:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at -40.50 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex