JGBs flat despite weak equities

The Japanese government bonds traded nearly flat on Thursday, despite weak cues emerging from equities index. The yield on the benchmark 10-year bonds, which moves inversely to its price, rose ½ basis point to -0.109 percent, yield on super-long 40-year bonds also climbed ½ basis point to 0.413 percent and short term 2-year bonds yields hovered at -0.240 percent by 05:55 GMT.

Bank of Japan policy board member Sato said that Japan economy likely to avert recession and global economic slowdown likely to continue for time being. Said companies have been cautious on capex, this trend may strengthen due to global market developments and negative rate policy may have dampened household sentiment. Said QQE was 'shock' therapy, personally did not expect it to last for too long and negative rate policy may have monetary tightening, not easing effect on economy. He further added that the BOJ must take balanced approach in achieving its mandate of price stability and financial stability, but negative rate policy may hurt that balance. Said the BOJ must modify its current framework to one that is more suitable for long-term battle vs deflation and it is desirable to aim to achieve price target as a medium to long term goal. Said he expect road towards achieving 2% inflation target will be long.

Yesterday, Japan Q1 capital spending rose 4.2 percent y/y, higher than the market consensus of 2.4 percent, from 8.5 percent in the last quarter. Moreover, capital spending- excluding software rose 4.3 percent y/y, against market anticipation of 4.0 percent, from 8.9 percent in the previous quarter. On the other hand, company profits fell 9.3 percent y/y from prior -1.7 percent. Company sales, however, fell 3.3 percent y/y from last quarter's -2.7 percent and Nikkei Japan May (final) manufacturing PMI fell to 47.7 (preliminary was 47.6) from 48.2 in April.

According to Reuters, the BoJ announced on Tuesday evening that it decided to reduce the initial purchase amount per operation by JPY 20 billion each in the 10-25 year zone and in the 25-40 year zone to JPY220 billion and JPY140 billion, respectively.

In addition, Japanese PM Shinzo Abe came out on the wires via Bloomberg and finally announced his decision on the sales-tax hike postponement this Wednesday. PM Abe decided to delay sales tax increase by 2.5 years, as widely speculated by the markets participants.

Meanwhile, the benchmark Nikkei 225 index was trading down -2.27% at 16,570, and the broader Topix index inched lower 2.22 percent to 1,331.70 points by 05:55 GMT.