JGBs rise after BoJ’s Nakaso backs further monetary easing

The Japanese government bonds gained on Thursday as investors poured into safe-haven assets after Bank of Japan Deputy Governor Nakaso signalled that the central bank is ready to expand monetary stimulus if needed to hit its inflation target. Also, investors were cautious as Japanese equities slide after yen advanced ahead of BOJ and Fed policy meetings, scheduled next week.

On the contrary, crude oil prices scaled beyond the $51 mark in the Asian session, which limited the fall in bond yields.

The yield on the benchmark 10-year bonds, which moves inversely to its price fell 1 basis point to -0.117 percent by 07:30 GMT.

Bank of Japan Deputy Governor Nakaso said that Japan's economy is expected to expand moderately and he expects 2 percent inflation target to be hit in fiscal 2017/18. He further added that it takes some time for the effect of monetary policy to appear in an economy and there is absolutely no change in BoJ's commitment to hit 2 percent inflation target. Said the BoJ will take additional steps if needed to hit price goal and he mentioned that no easing in April does not rule out any further action, he added.

Bold easing is necessary to put the economy on track for sustainable growth and some indicators suggest a fall in bond market liquidity since the start of the year, he added.

In addition, Bank of Japan Governor Haruhiko Kuroda will make a decision on stimulus on June 16 and the Federal Open Market Committee (FOMC) gathering scheduled for June 14-15. The U.K. decision on whether to remain in the European Union on June 23 is also weighing on investors’ minds.

The JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Today, crude oil prices jumped beyond $51 mark as strong China imports aided positive trading sentiment amid the ongoing supply outages in Nigeria and falling U.S. crude oil inventories. The International benchmark Brent futures fell 0.27 percent to $52.37 and West Texas Intermediate (WTI) jumped 0.08 percent to $51.27 by 07:55 GMT.

Meanwhile, the benchmark Nikkei 225 index closed down -0.97% at 16,668.41, and the broader Topix index also closed lower 1 percent to 1,337.41 points.