Japanese bonds plunge on higher risk appetite

The Japanese government bonds plunged Friday as investors cooled on safe-haven instruments amid gains in riskier assets including crude oil and equities.

The yield on the benchmark 10-year bonds, which moves inversely to its price rose 3 basis points to -0.165 percent, yield on super-long 40-year bonds jumped more than 2 basis points to 0.219 percent, yield on 15-year bonds climbed nearly 3 basis points to -0.019 percent (dip below zero for the first time on Tuesday) and the short-term 2-year JGB yield bounded 1 basis point to -0.265 percent by 06:10 GMT.

On Thursday, the Bank of Japan left its key policy rate unchanged at -0.1 percent and also chosen not to expand its quantitative and qualitative easing programme beyond its current level of buying 80 trillion yen assets a year.

This policy decision on negative interest rate was made by 7-2 votes and on debt buying by 8-1 votes. On the contrary, board member Takahide Kiuchi and Takehiro Sato voted against keeping the policy rate in negative territory and Takahide Kiuchi also proposed tapering annual JGB purchases to 45 trillion yen, which was turned down by a majority vote.

The Central Bank said in its monetary statement that Japan's economy continues to recover moderately as a trend, while keeping assessment unchanged from April. They further added that CPI likely to be slightly negative or about 0 percent for time being due to weak energy prices. But the central bank stuck to its long-term forecast that inflation will accelerate toward 2 percent after some weakness, and left its relatively optimistic assessment of Japan’s economy unchanged as well.

Moreover, 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 International benchmark Brent futures rose 1.21 percent to $47.76 and West Texas Intermediate (WTI) climbed 0.80 percent to $46.58 by 05:30 GMT.

Meanwhile, the benchmark Nikkei 225 index closed up 1.07 percent at 15,599.66, and the broader Topix index closed higher 0.75 percent to 1,250.83 points.