JGBs narrowly mixed in subdued trade; stocks surge on weak Yen

The Japanese government bonds traded narrowly mixed Monday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance. Also, stocks prices surged following weakness in yen.

The benchmark 10-year bond yield, which moves inversely to its price, fell 1 basis point to 0.031 percent, the yield on long-term 30-year note climbed 3-1/2 basis points to 0.633 percent and the yield on short-term 2-year note dipped 1 basis point to -0.176 percent by 06:00 GMT.

Exports in Japan witnessed a 13th straight month of fall during the period of October, following strength in the local currency, amid a sluggish global demand. However, the current weakness in the yen may alter the trade outlook of the economy.

Japan posted a trade surplus for the second successive month, at JPY5.374 billion, data showed. Also, exports fell 10.3 percent in the year to October, pulled down by a strong rise in the value of the yen and lower export volumes, much weaker than the expected 8.6 percent drop and September's 6.9 percent decline, data released by the Ministry of Finance (MoF) showed Monday.

Federal Reserve Chair Janet Yellen, in her congressional testimony, strengthened bets that the central bank was on the right path to hike interest rates in December. This was the first direct signal from the Fed after December last year.

The JGBs have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield jumped 5-1/2 basis points to 2.32 percent. The probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 96 percent.

However, the Bank of Japan’s Governor Haruhiko Kuroda said that the central bank will continue to intervene in the fixed income market to keep the JGB yields at target level of zero percent.

According to Reuters, under BoJ’s current monetary policy scheme outlined in September to adopt a strategy of JGB yield curve control, the BoJ has said it will guide the benchmark 10-year yield to around zero percent in an effort to stoke stubbornly low inflation and boost growth.

On Thursday, the BoJ offered to buy an unlimited amount of JGBs with 1 to 3 years of maturity at a yield of 0.020 percent above the previous close. It also offered to purchase an unlimited amount of JGBs with 3 to 5 years to maturity at 0.019 percent above the previous close, Reuters added.

Meanwhile, the benchmark Nikkei 225 closed up 0.77 percent at 18,106.02 and the broader Topix index closed up 1.01 percent higher to 1,442.93 points.

While at 06:00 GMT, the FxWirePro's Hourly Japanese Yen Strength Index remained highly bearish at -132.20 (lower than -75 represents bearish trend).