JGBs trade modestly lower on higher-than-expected PPI, 20-year auction in focus

The Japanese government bonds traded modestly lower Monday following higher-than-expected producer price inflation data amid a relatively subdued trading session as U.S. markets remain closed on account of 'Martin Luther King Day'. Also, markets are looking forward to the 20-year long-term bond auction scheduled to be held on Tuesday.

Further, investors are anxiously eyeing the month-end monetary policy meeting of the Bank of Japan (BoJ), scheduled to be held on January 31.

The benchmark 10-year bond yield, which moves inversely to its price, rose 1/2 basis point to 0.05 percent, the long-term 30-year bond yields rose 1 basis point to 0.74 percent and the yield on short-term 2-year note almost remained flat at -0.21 percent by 06:40 GMT.

Japan’s December producer prices rose 0.6 percent m/m, above market expectations of 0.4 percent m/m growth, and up from 0.4 percent in November. On an annual basis, it came at -1.2 percent y/y, better than the market consensus of -1.4 percent y/y decline, up from prior -2.2 percent y/y.

In addition, Japan’s Ministry of Finance (MoF) is scheduled to auction 20-year JGBs worth JOY1.1 trillion on Tuesday, 5-year bonds worth JPY2.4 trillion on Thursday and super-long 40-year JGBs worth JPY500 billion on January 24.

Lastly, the BoJ’s first two-day monetary policy meeting for 2017 will take place on January 30-31. We foresee that the central will remain committed to hold its 10-year JGB yields near zero, while keeping interest rate steady at -0.10 percent.

Meanwhile, the benchmark Nikkei 225 ended 0.97 percent lower at 19,100.00, while at 6:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at 66.00 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex