Japanese bonds gain on weak stocks and rate cut hopes

The Japanese government bonds gained on Tuesday as investors poured into safe-haven instruments amid losses in riskier assets including stocks and crude oil.

Also, rising expectations for further Bank of Japan easing in the upcoming policy meeting is encouraging investors to buy safe-haven assets.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell nearly 2 basis point to -0.254 percent, the yield on long-term 30-year note fell 1 basis point to 0.268 percent and the short-term 2-year JGB yield dipped 1/2 basis point to -0.332 percent by 07:20 GMT.

The super-long JGBs turned moderately firmer after the MoF published decent results of today's bimonthly 400 billion yen 40-year JGB reopening auction, Reuters reported.

Moreover, the Bank of Japan is expected to ease interest rates at its monetary policy meeting scheduled for July 29 as stagnant growth and continued risk of deflation will weigh on BoJ Governor Kuroda’s decision.

According to a Bloomberg poll, 78 percent of analysts expect that the Bank of Japan will expand easing this week. Bloomberg's survey was conducted during July 15-22 which found 32 of 41 analysts forecast the BoJ will expand their stimulus program.

An increase in purchases of exchange-traded funds remains the most likely area for a boost, followed by a deeper cut in the negative interest rate applied to a portion of the money that commercial banks deposit at the BoJ.

Looking ahead, we expect an expansion of the central bank's asset purchase programme to 85 trillion yen annually, which includes scaling up of ETF and J-REIT. Also, the BoJ is expected to witness a 10 basis points cut in its marginal deposit rate to -0.2 percent.

According to a report from Nikkei, the Japanese government is expected to double planned spending in the stimulus package. The net fiscal stimulus spending is expected to be 6 trillion yen, which is double as compared to the initial planned spending of 3 trillion yen.

In addition, 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 continue to trade lower due to sluggish global demand and rising supply glut. Meanwhile, the International benchmark Brent futures fell to $45.28 and West Texas Intermediate (WTI) tumbled to $43.22.

Lastly, investors will remain keen to focus on the CPI data, industrial production, retail sales on Thursday at 23:30 GMT and BoJ policy decision on Friday.

Meanwhile, the benchmark Nikkei 225 index closed down -1.43 percent at 16,383.04, and the broader Topix index closed lower 1.39 percent to 1,306.94 points.