JGBs slump on robust wage growth; Q2 GDP data in focus

Japanese government bonds slumped across the curve on Tuesday after household spending and wages data came better than expected for the month of June. Also, investors remain optimistic about Q2 GDP growth which is scheduled to be released on Friday.

The yield on the benchmark 10-year JGB note, which moves inversely to its price, rose 1 basis point lower at 0.114 percent, the yield on the long-term 30-year note also jumped 1 basis point to 0.856 percent and the yield on short-term 2-year moved 1 basis point up to -0.103 percent by 03:30 GMT.

June household spending declined 1.2 percent y/y, registering 5th consecutive month of declines, however, the fall was much lower compared to the market expectations of 1.6 percent decline and way better from May’s 3.9 percent drop. At the same time, workers’ real wages jumped 2.8 percent in June, surging from a 1.3 percent growth seen in May and recording the fastest pace of growth in 21 years. That could provide some lift the crawling consumer inflation.

According to a Reuters report, the Bank of Japan had supposedly considered raising interest rates probably by end of 2018 before market turbulence in January and lower consumer inflation numbers shelved plans. The forward guidance in the last week’s monetary policy meeting is a policy normalization tool that could be tweaked again when the circumstances turn in favor of hike.

"US 10-year treasury yields extended the previous day’s decline to close 1 basis point lower. US 2-year yields closed unchanged. Fed fund futures yields continued to price almost two more rate hikes this year," noted St. George Bank in its morning report.

Meanwhile, the Nikkei 225 index traded 0.63 percent higher at 22,648.50 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly JPY Strength Index remained slightly bullish at 89.55 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex