Japanese bonds gain as investors sentiment softens on Doha failure

The Japanese long-term government debt instrument gained on Monday as investors pour into safe-haven assets amid deepening economic growth fears after the frailer of Doha negotiation coupled with weak equities market. The yield on the benchmark 10-year, which moves inversely to its price, moved down 14.29 pct to -0.120 pct and 40-year bonds yield dipped 5.92 pct to 0.397 pct by 0545 GMT.

The negotiations between Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement in the Doha round of talks on Sunday to strike a deal on oil output freeze. On the other hand, Saudi Arabia said that they were ready to freeze the current level of crude oil production on condition that all other producing countries follow the same. The Japanese bonds have been closely following developments in oil markets because of their impact on inflation expectations. The International benchmark Brent futures fell 4.06 pct to $41.35 and West Texas Intermediate (WTI) tumbled 4.63 pct to $38.49 by 0515 GMT.

Apart from this, the Bank of Governor Kuroda in its latest comment said that the Bank of Japan will continue QQE with negative rate for as long as needed to hit price the Bank of Japan price target and won't hesitate taking additional easing steps if needed to hit price goal. He further added that the BOJ will achieve price target by making full use of existing framework and 3-tier system of negative rate framework means direct negative impact on financial institutions' profits is minimised and both monetary policy and growth strategy are necessary to beat deflation.

According to recent Reuters poll, out of 16 analysts 8 said that the BOJ will take easing steps at 27-28 April meeting, 3 expected in June and 5 said in July. Apart from this, 10 analysts were confident to say that the BOJ will adopt a combination of cutting rates deeper into negative territory and boosting asset purchases.

Moreover, the BoJ's adoption of negative rates in January has driven JGB yields below zero, while also increasing its market volatility.

Further, we expect an expansion of stimulus, and if the market happens to rule out any additional boost in stimulus, that would create an opportunity to go long and we also foresee that the 10-year note will yield about -0.15 pct at year-end.

Lastly, the Bank of Japan will hold its two-day monetary policy meeting on 27-28 April. The BoJ's 9-member policy board is expected to decide policy rate and update forecasts inflation and growth figures.

Meanwhile, the Japan’s Nikkei 225 traded lower 3.30 pct at 16,292.24 by 0550 GMT.