Japanese long-term bonds gain after weak industrial production, BoJ’s easing expectations

The Japanese long-term government debt instrument gained on Friday amid weak industrial production 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 17.86 pct to -0.099 pct and 30-year bonds yield dipped 0.99 pct to 0.398 pct by 0745 GMT.

Japanese industrial production in February plunged 5.2 pct y/y, as compared to 6.2 pct in January. On annually basis, it fell 1.2 pct, from prior down 1.5 pct. Similarly, February capacity utilization tumbled -5.4 pct, from -2.6% in January.

Yesterday, the Bank of Governor Kuroda while speaking in New York said that the Bank of Japan 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.