JGBs modestly lower post sluggish demand at 30-year auction; February industrial production in focus

The Japanese government bonds traded modestly lower Thursday, after witnessing sluggish demand at the 30-year auction held earlier in the day. Also, market participants are curiously eyeing the February industrial production, scheduled to be released on April 14 for detailed direction in the debt market.

The benchmark 10-year bond yield, which moves inversely to its price, traded flat at 0.02 percent, the long-term 30-year bond yields rose 1 basis point to 0.79 percent and the yield on the short-term 3-year note traded 1/2 basis point higher at -0.19 percent by 06:50 GMT.

Japan’s household spending declined 3.8 percent in February (forecast -1.7 percent), while the unemployment rate was 2.8 percent (forecast 3 percent) in February. Further, industrial production rose 2.0 percent in February from the previous month (forecast 1.2 percent).

The persistent weakness in inflation figures and the disappointing results of spring wage negotiations should prompt the Bank of Japan (BoJ) to keep policy unchanged. While the central bank has trimmed the amounts of 1-3Y and 3-5Y bond purchases during the monthly operation plans for April, it may not be in a hurry to kick start the process of progressive tapering.

However, given the recent positive data from the Tankan survey, industrial production, exports and employment, the BoJ is likely to show greater confidence about the GDP growth outlook and upgrade assessment at the next meeting on April 27. The Q1 Tankan survey suggested that business confidence has improved for the second consecutive quarter.

Meanwhile, Japan’s Nikkei 225 closed 0.75 percent lower at 18,413, while at 06:00GMT, the FxWirePro's Hourly Yen Strength Index remained neutral at 45.04 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex