Japanese bonds narrowly mixed ahead of 10-year JGB auction

The Japanese government bonds traded narrowly mixed Wednesday as investors await the benchmark 10-year JGB auction, which is scheduled to take place on Thursday at 03:45 GMT. Also, firm equities supported the bond yields.

The benchmark 10-year bond yield, which moves inversely to its price, hovered around -0.071 percent mark, the super-long 30-year JGB yield climbed 2 basis points to 0.418 percent, the 5-year JGB yield remained steady at -0.178 percent and the short-term 2-year JGB yield climbed ½ basis point to -0.193 percent by 07:00 GMT.

The long-term Japanese government bonds continued to trade lower after the Federal Reserve Chair Janet Yellen at the annual Jackson Hole Symposium signalled that the possibilities of increasing policy rates have strengthened in recent months.

Moreover, the Bank of Japan governor Kuroda while speaking at Jackson Hole hinted at negative rate bias and said that the central bank will continue to carefully examine risks and take additional easing measures without hesitation. He said that there is a possibility that long-term inflation expectations are yet to be anchored in Japan.

Kuroda said he felt that between quantitative easing and negative interest rates the BoJ had an "extremely powerful policy scheme" and "will act decisively as the bank moves on in order to raise inflation to 2 percent.

According to recent Reuters poll, 60 percent of economists see the Bank of Japan easing in September; 40 percent see them stay unchanged. Pollsters are split on possible policy action and over 50 percent said the BoJ will adopt more flexible wording on inflation targeting.

On Tuesday, Japan’s July unemployment rate fell to more than two-decade low to 3.0 percent, lower than the market expectations of 3.1 percent, from 3.1 percent in June. However, job-to-applicant ratio for July remained steady at 1.37.

Additionally, Japan July retail trade rose 1.4 percent m/m, higher than the consensus  of 0.8 percent m/m, as compared to 0.3 percent in June.  Overall household spending fell -0.5 percent y/y, better than the expectation of 1.5 percent fall, from down 2.2 percent in June.

Meanwhile, the benchmark Nikkei 225 closed up 0.97 percent at 16,887.40 and the broader Topix index also closed 1.27 percent higher to 1,329.54 points.