Japanese bonds gain on lower risk appetite; consumer inflation in focus

The Japanese government bonds gained Tuesday as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. Also, stronger-than-expected 20-year bond auction supported the prices.

The benchmark 10-year bond yield, which moves inversely to its price, fell nearly 2 basis points to -0.086 percent, the super-long 30-year JGB yield dipped 3 basis points to 0.331 percent and the short-term 2-year JGB yield slid 1/2 basis point to -0.200 percent by 06:20 GMT.

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 declined more than 3 percent as Iraq prepared to increase its exports and renewed concerns that upcoming producer talks will not rein in oversupply. Also, worries about expanding Chinese fuel exports dragged oil prices. The International benchmark Brent futures fell 1 percent to $48.67 and West Texas Intermediate (WTI) dipped 1.27 percent to $46.81 by 05:00 GMT.

Over the weekend, Bank of Japan Governor Kuroda said that the central bank will not rule out deepening cut to negative rates it introduced in January and there is a sufficient chance the BoJ will add to its easing programme next month.

He further said that chances are high that the BoJ will reach its inflation target in fiscal 2017, but uncertainties are rising due to the global economic situation.

He said there is "technically" room for deeper negative rates while ruling out the use of so-called helicopter money and the BoJ will consider whether to make any changes to the JPY 80 trillion per year asset purchases after a comprehensive review of its current monetary policy that will be announced in September on the day of its policy meeting.

According to Reuters, the results of today's monthly 1.1 trillion yen 20-year JGB reopening auction were moderately stronger than widely expected.

Lastly, investors will remain keen to focus on the Tuesday’s BoJ Governor Kuroda speech, July national consumer inflation and BoJ’s own inflation number.

Meanwhile, the benchmark Nikkei 225 closed down 0.61 percent at 16,497.36 and the broader Topix index also closed 0.47 percent lower to 1,297.56 points.