Japanese bonds sag on firm equities, consumer inflation eyed as investors struggle for direction

The Japanese government bonds slumped Wednesday, following a surge in equities during a relatively quiet session. Also, investors awaited the July national consumer inflation data as they struggle for trading direction.

The benchmark 10-year bond yield, which moves inversely to its price, rose 1 basis point to -0.077 percent, the super-long 30-year JGB yield climbed 1/2 basis point to 0.330 percent and the short-term 2-year JGB yield bounced 1 basis point to -0.193 percent by 07:00 GMT.

However, markets are likely to maintain recent range in the lead up to Fed Chair Yellen’s Jackson Hole speech on Friday.

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. Additionally, tumbling crude oil prices limited the growth in bond yields.

The crude oil prices declined more than 1 percent as Iraq prepared to increase its exports and renewed concerns that upcoming producer talks will not rein in oversupply. Also, worries about expanding Chinese fuel exports dragged oil prices. The International benchmark Brent futures fell 1.60 percent to $49.16 and West Texas Intermediate (WTI) dipped 1.39 percent to $47.43 by 07:00 GMT.

Over the weekend, Bank of Japan Governor Kuroda said that the central bank will not rule out deepening cut to negative rates it introduced in January and there is a sufficient chance the BoJ will add to its easing programme next month.

He further said that chances are high that the BoJ will reach its inflation target in fiscal 2017, but uncertainties are rising due to the global economic situation.

He said there is "technically" room for deeper negative rates while ruling out the use of so-called helicopter money and the BoJ will consider whether to make any changes to the JPY 80 trillion per year asset purchases after a comprehensive review of its current monetary policy that will be announced in September on the day of its policy meeting.

Lastly, investors will remain keen to focus on the Thursday’s July national consumer inflation and BoJ’s own inflation number.

Meanwhile, the benchmark Nikkei 225 closed up 0.6 percent at 16,597.30 and the broader Topix index also closed 0.71 percent higher to 1,306.71 points.