Longer-dated Japanese government bonds dipped on Wednesday as the Nikkei share average shrugged off a record economic contraction during the first quarter and gained for a second straight day. Japan's economy shrank 4.0 percent in the January-March quarter, slightly less than the 4.2 percent drop expected by economists.
Although private consumption and capital spending were worse than expected, the data added to growing evidence that global trade may have bottomed out in the first quarter, with net exports proving to be less of a drag on the world's No 2 economy.
The bond market had anticipated the record contraction well in advance and its reaction to the GDP figures was limited. "The market is more focused on indicators that better predict future economic conditions and it hardly responded to the GDP, which is more about what happened than what is likely to happen," said Koji Ochiai, a senior market economist at Mizuho Investors Securities.
The focus is shifting to the Bank of Japan's two-day monetary policy meeting starting on Thursday. With the central bank widely expected to keep interest rates steady at 0.10 percent, participants are waiting to see if it will raise its assessment of the economy amid signs of a recovery in exports and production and if its policy board will discuss expanding the range of eligible collateral for market operations.
The Nikkei business daily reported on Tuesday that the central bank was considering allowing financial institutions to put up US Treasury bonds and other foreign debt instruments as collateral for open-market operations. June 10-year JGB futures edged up 0.01 point to 137.18.
The two-year yield fell 1 basis point to 0.365 percent. The benchmark 10-year yield edged up 0.5 basis point to 1.420 percent and the 20-year yield rose 1.5 basis points to 2.100 percent. The Nikkei rose 0.6 percent on Wednesday after surging 2.8 percent the previous day.
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