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JGBs rise modestly as investors cover previous short positions; FOMC decision in focus

The Japanese government bonds traded modestly firmer Wednesday as investors bought safe-haven assets to cover previous short positions. Also, traders remained cautious ahead of the Federal Reserve monetary policy decision scheduled to be released today by 18:00 GMT.

The benchmark 10-year bond yield, which moves inversely to its price, fell 1 basis point to -0.059 percent, the yield on long-term 30-year Treasury dipped 2-1/2 basis points to 0.485 percent and the yield on short-term 2-year note slid nearly 1 basis point to -0.247 percent by 06:30 GMT.

The market is wary of a Brexit-like outcome at the presidential election on November 8. Also, it is widely expected that the Federal Reserve is unlikely to hike rates at this week’s FOMC meeting on November 2 before the US presidential election.

The Bank of Japan maintained a neutral stance in its two-day monetary policy meeting that concluded Tuesday, holding the short-term interest rate at -0.10 percent. Also, maintained the 10-year JGB yield target at around zero percent and is to buy JGBs more or less at the current pace, so that its holdings increase at an annual pace of around 80 trillion yen.

In a quarterly review of its forecasts, the BoJ cut its inflation forecasts for the next fiscal year ending in March 2018 to 1.5 percent from 1.7 percent in July. Meanwhile, Japan's economy expanded for the second straight quarter in April-June but many expect growth to remain modest for the rest of this year, with exports and output weak on sluggish global demand.

Meanwhile, the benchmark Nikkei 225 closes down 1.76 percent at 17,134.68 and the broader Topix index closed 1.78 percent lower to 1,368.44 points.

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