Japanese bonds narrowly mixed in quiet trade; ECB’s decision eyed

The Japanese government bonds traded narrowly mixed on Wednesday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. Also, investors await policy decision from the European Central Bank (ECB), which is scheduled to take place on Thursday at 11:00 GMT.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell ½ basis points to -0.234 percent, the yield on long-term 30-year note rose nearly 1 basis points to 0.209 percent, the yield on 7-year note dipped 1 basis point to -0.337 percent and the short-term 2-year JGB yield climbed 1/2 basis points to -0.318 percent by 06:50 GMT.

Moreover, Japan’s policymakers and central bankers are likely to adopt a soft helicopter money approach, instead of funding government spending through a mechanism of direct debt monetization, reports said. A helicopter is an approach in which the central bank directly finances budget stimulus through various programs, such as perpetual bonds.

The Bank of Japan is expected to remain under pressure to expand monetary stimulus at its rate review on July 28-29 as Prime Minister Shinzo Abe prepares to announce a huge spending package as early as before the month ends.

"It's clear the government won't do helicopter money in the strict sense," Reuters reported, citing a government official with knowledge of deliberations on what action to pursue.

In addition, speculations about the Japanese government’s most probable helicopter money approach came into the limelight after former Federal Reserve Chairman Ben Bernanke met PM Abe and BoJ Governor Haruhiko Kuroda during a private visit to Tokyo.

In a situation where the BoJ’s target rate of 2 percent inflation, seems unreachable and prices continue to steer fall on weak consumption, the central bank stands to justify adoption of further stimulus measures as a tool to prop up the drowning economy.

Moreover, expectations of new stimulus in Japan from the government to revive economy lowered demand for safe-haven assets. The Japan's upper house election over the weekend concluded with a win for Prime Minister Abe and his coalition partners.

The Japanese PM Abe also confirmed that he will instruct economy minister Nobuteru Ishihara to compile economy stimulus package and ask to implement economic measures to support domestic demand.

Meanwhile, the benchmark Nikkei 225 index closed down -0.25 percent at 16,681.89, and the broader Topix index closed 0.05 percent lower to 1,330.75 points.