JGBs mixed in muted trading amid speculation over BoJ’s policy change; 10-year yields retreat from 6-month high

The Japanese government bonds remained mixed Tuesday amid a muted trading session that witnessed data of little economic significance. The 10-year yields retreated from a 6-month high on Monday after investors’ speculation over a possible change in the monetary policy by the Bank of Japan (BoJ) took a hit ahead of the central bank’s two-day meeting on July 30-31.

According to media reports, the BoJ is considering to make preliminary changes to its interest-rate targets as well as stocks-buying techniques, aimed at making the massive stimulus program, started by Governor Haruhiko Kuroda in 2013, more sustainable. However, we refrain from believing that the central bank will throw any big surprises, since Japan’s inflation is at a very low level and until prices improve as per expectations over the near future.

The yield on Japan’s benchmark 10-year bond, which moves inversely to its price, hovered around 0.08 percent, the yield on the long-term 30-year surged nearly 2 basis points to 0.93 percent and the yield on short-term 2-year remained tad lower at -0.10 percent by 05:30GMT.

The country’s flash manufacturing PMI fell to 20-month low of 51.6 in July, from 53.0 in June. Input and output price inflation both accelerate to multi-year highs while business confidence dipped noticeably.

Japan's inflation is seen as unlikely to reach the BoJ's 2 percent target even after the central bank, which frequently buys more JGBs than the government issues, soaking up more than 40 percent of government debt. The central bank has been gradually reducing its bond buying since September 2016, when it set a policy target of zero percent in the 10-year JGB yield, relegating its quantitative bond buying target to a secondary role.

Meanwhile, the Nikkei 225 index rose 0.50 percent to 22,508.00 at 05:30, while at 05:00GMT, the FxWirePro's Hourly JPY Strength Index remained highly bullish at 139.03 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex