Japanese bonds rise modestly on stronger 20-year auction; CPI data in focus

The Japanese government bonds traded modestly firmer Tuesday after the MoF published better-than-expected results for 20-year Treasury auction. Also, weak crude oil prices drove investors towards safe-haven buying.

The benchmark 10-year bond yield, which moves inversely to its price, fell nearly 1 basis point to -0.060 percent, the yield on long-term 30-year Treasury also dipped 1 basis point to 0.483 percent and the yield on short-term 2-year note slid 1/2 basis point to -0.246 percent by 06:30 GMT.

The JGBs have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Bank of Japan's target. Crude oil prices tumbled as disagreement flared within producer cartel OPEC. The International benchmark Brent futures fell 0.19 percent to $51.37 by 07:00 GMT.

Last week, Bank of Japan Governor Haruhiko Kuroda said that the central bank will evaluate appropriate yield curve at every meeting and added that ideal yield curve can change depending on economy and prices. He said that price conditions not very different from September and it is difficult to target specific yield rate or range. He also said that the BoJ's 80 trillion yen QQE target allows for some flexibility, but not immediately thinking of lowering the goal.

Further, Kuroda said that there was a view voiced in the previous BoJ policy meeting that the yield curve should be steeper and there is no need to set rigid range for 10-year JGB yield, and it would be inappropriate to do so.  He said the BoJ may slow JGB buying if 10-year yield falls well below its target and does not see an immediate possibility of BoJ JGB buying falling sharply from current 80 trillion yen pace. Lastly, he added that the timeframe for achieving 2 percent inflation may be modified at this month's policy meeting from the current forecast it will be hit during fiscal 2017.

Lastly, investors will remain keen to focus on the series of upcoming economic data, highlighted by household spending, National CPI, unemployment rate, BoJ’s own CPI number and 10-year bond auction.

Meanwhile, the benchmark Nikkei 225 closed up 0.76 percent at 17,365.25 and the broader Topix index closed 0.71 percent higher to 1,377.32 points.