The Japanese government bonds traded narrowly mixed Thursday despite an auction of 10-year JGBs that attracted solid bids. Also, upbeat December services PMI limited fall in bond yields.
The benchmark 10-year bond yield, which moves inversely to its price, fell 1/2 basis point to 0.06 percent, the long-term 30-year bond yields climbed 1 basis point to 0.75 percent and the yield on short-term 3-year note slid 1 basis point to -0.15 percent by 06:30 GMT.
The auction of 2.4 trillion yen 10-year JGBs drew strong demand, with the tail, or the gap between and the lowest and average prices, shrinking to 0.03 from 0.08 in previous, indicating tight demand, Reuters reported.
The Nikkei Japan Services PMI rose to 52.3 in December from 51.8 in November, marking the highest reading since January 2016. A reading above 50 indicates economic expansion, while one below 50 points toward a contraction.
Moreover, the JGBs have been closely following developments in the U.S. debt market. The benchmark 10-year bond yields fell 23 basis points to 2.41 percent in just three weeks.
Minutes from the 13 - 14 December FOMC meeting indicated that most participants judged that a gradual pace of rate increases was likely to be appropriate to promote the Committee's objectives of maximum employment and 2 percent inflation (currently expected to be roughly 75 basis points of tightening over the course of 2017).
A gradual pace was also viewed by some participants as likely to be warranted because the proximity of the federal funds rate to the effective lower bound placed constraints on the ability of monetary policy to respond to adverse shocks to the aggregate demand for goods and services.
However, while viewing a gradual approach to policy firming as likely to be appropriate, participants emphasised the need to adjust the policy path as economic conditions evolved. They pointed to a number of risks that, if realised, might call for a different path of policy than they currently expected (highlighting increased uncertainty regarding fiscal and other economic policies). As to be expected policymakers are likely to maintain current views until further details surrounding fiscal policy are revealed.
Lastly, the BoJ’s first two-day monetary policy meeting for 2017 will take place on January 30-31. We foresee that the central will remain committed to hold its 10-year JGB yields near zero, while keeping interest rate steady at -0.10 percent.
Meanwhile, the benchmark Nikkei 225 ended 0.37 percent lower 19,520.69. While at 06:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index stood neutral +70.88 (higher than +75 represent a bullish trend).
JGB Technical Assessment: Momentum Weekly Bearish
With a break below 150.00, which lead the price to 149.00 followed by 148.00 further out. The pair may stall around the price 150.00. Back above 152.00 will force to revalue.
Analysis Bias
1-Week Objective: DOWN to 149.00 Conviction: Strong
4-Week Objective: DOWN to 147.00 Conviction: Weak
Resistance 3: 153.000 **
Resistance 2: 152.000 **
Resistance 1: 151.500 **
05-Jan LAST 150.100
Support 1: 149.000 *
Support 2: 148.000 *
Support 3: 147.000 **
