Japanese bonds plunge on upbeat US employment report, Nikkei at one-week high

The Japanese government bonds plunged Monday as the Japan’s benchmark Nikkei 225 index hit a one-week high following Friday’s upbeat United States non-farm payrolls report.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 4-1/2 basis points to -0.046 percent, the super-long 40-year JGB yield climbed 2-1/2 basis points to 0.506 percent and the short-term 2-year JGB yield jumped 2 basis points to -0.167 percent by 07:20 GMT.

The July US Labour Department employment situation report revealed a considerable +255k increase in non-farm payrolls, which comes well above market expectations for a +180k increase, as compared to the revised +292k result that occurred in June (previous was  +287k). This comes alongside no change in the unemployment rate at 4.9 percent, above expectations for a 4.8 percent result.

We expect that it is likely to be difficult for the investors to find any dovishness in this report, keeping alive September 21 Fed hike expectations (Bloomberg’s implied probability is at 26 percent).

According to Reuters, JGBs logged their worst sell-off in more than three years on Tuesday last week, after the Bank of Japan did not include any additional JGB purchases in easing steps it announced on July 29. That raised speculation that the central bank had reached the limits of its JGB buying.

Meanwhile, the benchmark Nikkei 225 closed 2.44 percent higher to 16,650.57 and the broader Topix index closed 2.00 percent firmer to 1,305.53 points.