Japanese bonds steady in subdued trade, BoE's policy decision eyed

The Japanese government bonds traded nearly flat on Thursday, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance.

The yield on the benchmark 10-year bonds, which moves inversely to its price hovered around -0.27 percent mark and the short-term 2-year JGB yield remained steady at -0.35 percent by 06:50 GMT.

On Wednesday, May final industrial production fell 2.6 percent m/m, from -2.3 percent in April. It also dipped 0.4 percent y/y in May, compared to -0.1 percent y/y in April. Similarly, capacity utilization tumbled 2.4 percent compared to -1.0 percent in the month of April.

Moreover, Japan's adviser to Prime Minister Shinzō Abe, Koichi Hamada said that Japanese stocks have been oversold and helicopter money would be a risky gamble. He further added that it is best to co-ordinate Japan's fiscal and monetary stimulus.

The Japan's upper house election over the weekend concluded with a win for Prime Minister Shinzō 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.

According to Reuters, the bond market may have been slightly on the back foot but an auction of five-year JGBs still attracted firm demand on Thursday, with the Bank of Japan's massive debt-buying scheme expected to continue for the foreseeable future. The bid-to-cover ratio, a gauge of demand, at the 2.5 trillion yen ($23.9 billion) five-year sale declined from 4.66 at the previous sale in June to 3.45, but it was still comfortably above 2.0, a ratio dealers generally consider as satisfactory.

Meanwhile, the benchmark Nikkei 225 index closed up +0.95 percent at 16,385.89, and the broader Topix index closed 0.84 percent higher to 1,311.16 points.