Japanese long-term bonds gain after weak departmental store sales, BoJ’s easing expectations

The Japanese long-term government debt instrument gained on Tuesday amid weak March departmental store sales figure and expectation of further policy easing from the Bank of Japan. The yield on the benchmark 10-year, which moves inversely to its price, moved down 5.31 pct to -0.119 pct and 40-year bonds yield dipped 3.76 pct to 0.384 pct by 0640 GMT.

Japan’s nationwide departmental store sales tumbled 2.9 pct y/y, from up 0.2 pct in February, while this will not induce Prime Minister Abe for a raise in sales tax. On Sunday, Japanese PM Abe said that he is against any change in the current level of sales tax barring Lehman-like crisis or major natural disaster.

On the other hand, the Bank of Japan (BoJ) Governor Kuroda in its latest speech said that the BoJ will continue QQE with negative rate for as long as needed to hit price the Bank of Japan price target and won't hesitate taking additional easing steps if needed to hit price goal. He further added that the BOJ will achieve price target by making full use of existing framework and 3-tier system of negative rate framework means direct negative impact on financial institutions' profits is minimised and both monetary policy and growth strategy are necessary to beat deflation.

According to recent Reuters poll, out of 16 analysts 8 said that the BOJ will take easing steps at 27-28 April meeting, 3 expected in June and 5 said in July. Apart from this, 10 analysts were confident to say that the BOJ will adopt a combination of cutting rates deeper into negative territory and boosting asset purchases.

Moreover, the BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility.

Further, we expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 pct at year-end.

Lastly, the Bank of Japan will hold its two day monetary policy meeting on 27-28 April. The BoJ's 9-member policy board is expected to decide policy rate and update forecasts inflation and growth figures.