Japanese bonds trade nearly flat in subdued trade; U.S. presidential election in focus

The Japanese government bonds traded nearly flat Friday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance.

The benchmark 10-year bond yield, which moves inversely to its price, hovered around -0.06 percent mark, the yield on long-term 30-year Treasury remained steady at 0.49 percent and the yield on short-term 2-year note stood flat at -0.25 percent by 06:30 GMT.

The Bank of Japan kept its benchmark interest rate on hold at the 2-day monetary policy meeting concluded Tuesday, extending the time limit for achieving its long-drawn inflation target of around 2 percent. This followed the last month’s major overhaul that saw policymakers shift the focus from quantitative easing to interest rate targeting.

The unchanged policy decision was made by a majority 7-2 vote, holding the interest rate at -0.1 percent, since January this year, pledging to maintain the 10-year JGB yield target at around zero percent, with holdings rising 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.

Moreover, the market is wary of a Brexit-like outcome at the presidential election on November 8 as recent polls showed a tighter race between the two Presidential candidates. The RealClearPolitics poll displayed that Democratic nominee Hillary Clinton’s lead over her Republican rival Trump has narrowed down to 2.2 percentage points from more than 7 points two weeks ago.

Treasury prices are expected to rally this week as investors assume that the triumph of Republican Party nominee Donald Trump over Democratic Clinton will weaken the greenback against major trading currencies, while boosting demand for safe-haven assets.

Meanwhile, the benchmark Nikkei 225 closes down 1.34 percent at 16,905.36 and the broader Topix index closed 1.56 percent lower to 1,347.04 points.