Japanese bonds rise modestly as Nikkei falls to two-week low, dovish Fed minutes support

The Japanese government bonds gained Thursday, following weaker closing of Nikkei as investors preferred safe-haven assets after Fed July meeting minutes increased doubts over the next possible rate hike. Also, steady demand for 5-year bond at an auction boosted safe-haven buying.

The benchmark 10-year bond yield, which moves inversely to its price, fell nearly 1 basis point to -0.082 percent, the super-long 30-year JGB yield dipped more than 1/2 basis point to 0.356 percent, the 5-year JGB yield tumbled more than 1-1/2 basis points to -0.170 percent and the short-term 2-year JGB yield slid 1 basis point to -0.193 percent by 06:40 GMT.

Minutes from the 26 – 27 July FOMC meeting indicated that FOMC officials were split on whether a rate hike was needed soon. Overall, many judged that it was appropriate to wait for additional information that would allow them to evaluate the underlying momentum in economic activity and the labour market and whether inflation was continuing to rise gradually to 2 percent as expected.

However, several participants suggested there would likely be ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis.

On balance, participants generally indicated that their economic forecasts had changed little over the intermeeting period, continuing to anticipate that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labour market indicators would strengthen.

According to Reuters, at an auction on Thursday five-year Japanese government bonds were sold at the lowest price of 101.28, with the average price at 101.29, the Ministry of Finance said.

Meanwhile, the benchmark Nikkei 225 closed down 1.55 percent at 16,486.01 (nearly two-week low) and the broader Topix index also closed 1.55 percent lower to 1,290.79 points.