Japanese bonds gain as BoJ members show concerns over inflation outlook in July minutes

The Japanese government bonds gained Tuesday after the Bank of Japan board members in July meeting showed serious concerns about the failure to achieve the desired range of inflation and economic growth.

The benchmark 10-year bond yield, which moves inversely to its price, fell 1-1/2 basis points to -0.069 percent and the yield on short-term 2-year note dipped 2 basis points to -0.244 percent by 06:00 GMT.

The Bank of Japan board members in its July meeting minutes shared the view that inflation expectations had weakened recently and also recognized that risks to Japan's economic activity and prices remained skewed to the downside. Some members said that Japan's inflation expectations were vulnerable to external shocks like oil price falls and slowdown in overseas economies.

Further, many members said the BoJ should expand ETF buying given the risk overseas economies uncertainties might affect business and consumer sentiment. One member said that while expansion of ETF buying was necessary, attention should be paid to the impact on BoJ's financial soundness. Another member said that expanding ETF purchases would be viewed as indicating monetary easing was approaching its limit, while some other said that expanding ETF buying could be regarded as incremental approach to easing, might trigger endless expectations for further easing.

In addition, one member said that the central bank must thoroughly explain that its policy mix with government was different from 'helicopter money'. Meanwhile, a member pointed that the BoJ should reject the idea that monetary easing had its limits and side effects.

On Monday, Bank of Japan Governor Kuroda at a meeting with business leaders in Osaka said that they are ready to use every possible policy tool if needed; there's no limit to monetary policy and the BoJ is likely to relentlessly pursue innovation. He said that he can accelerate monetary base expansion if necessary along with more asset purchases. The main tool for more easing is still deepening negative rate cuts and lowering long-term rate targets.

He further mentioned that the shape and locations of the yield curve will broadly remain as they are at present. Also, large-scale monetary easing will be in place until observed CPI stays above the 2 percent target in stable manner.

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. The crude oil prices tumbled as investors took profits after prices climbed more than 3 percent in the previous session. The International benchmark Brent futures fell 0.23 percent to $47.82 and West Texas Intermediate (WTI) dipped 0.09 percent to $45.89 by 04:40 GMT.

Lastly, investors remained keen to focus on the upcoming OPEC informal meeting this week in Algiers. It is uncertain that a deal can be reached on freezing or cutting output.

Meanwhile, the benchmark Nikkei 225 closed up 0.84 percent at 16,683.93 and the broader Topix index closed 1 percent higher to 1,349.22 points.