Japanese government bond futures fell on Friday, pulling away from one-month highs hit earlier this week as share prices rose, while economic data shed little light on the likely timing of the Bank of Japan's next interest rate rise.
JGBs extended their losses in afternoon trade as dealers locked in profits following a rally in the past few weeks. JGB prices were supported most of this week as uncertainty over the outlook for global economic and market conditions fuelled expectations the BoJ would keep interest rates on hold this year.
"Dealers booked profits as today's data did not hold fresh factors to chase prices higher, although the underlying trend in the bond market remains upwards," said a senior trader at a European investment bank. December futures dropped 0.41 point to 135.78 pulling away from a one-month high of 136.26 reached during the previous day's regular session. Futures had risen as high as 136.27 in Wednesday's evening session.
Japan's nation-wide core consumer price index fell 0.1 percent in September from a year earlier, government data showed on Friday, matching the market's consensus forecast. Industrial production fell 1.4 percent in September from the previous month, compared with forecasts for a 1.3 percent drop, a separate report showed.
After the CPI and output data, there appears to be less than a 20 percent chance of a BoJ rate rise by the end of this year, according to swap contracts on the overnight call rate That was little changed from before the data.
Meanwhile, a rise in Tokyo's Nikkei share average and a slide in US Treasuries prompted investors to shift funds to stocks from safe-haven government debt.
Technical selling hit futures as the December contract broke its chart support, and the lead contract matched this week's low of 135.77, which is near-term support. The benchmark 10-year yield climbed 3.5 basis points to 1.615 percent rising from a one-month low of 1.555 percent reached on Monday. The two-year yield edged up 1.5 basis point to 0.780 percent, while the five-year yield rose 3.5 basis points to 1.105 percent. The 20-year yield climbed 3.5 basis points to 2.190 percent.
The Nikkei share average ended up 1.4 percent. Treasuries slipped on Thursday as US stocks pared losses after a report quelled rumours that insurance giant American International Group would post a big investment write-down.
BoJ, FED IN FOCUS:
The market's attention has shifted to policy meetings by Japanese and US central banks next week as high-profile CPI data is out of the way. The BoJ is widely seen keeping the overnight call rate at 0.5 percent at its policy meeting on Wednesday.
Investors will focus on the BoJ's twice-yearly outlook report on the economy and prices released after the policy meeting and comments from Governor Toshihiko Fukui at a news conference afterwards, watching whether the central bank will continue to show a forward-looking stance towards a rate rise.
The market is also likely to take its cue from the Federal Reserve's October 30-31 meeting, at which the US central bank is expected to lower interest rates again following a hefty half-percentage-point rate cut in September.
"Many investors are doubting the possibility of JGB yields falling further, given the fact that the BoJ is not expected to cut interest rates," said Mari Iwashita, senior market economist at Daiwa Securities SMBC. "At the same time, they cannot stop worrying about the US economy," said Iwashita, adding that the short-term direction in the JGB market is more likely to be set by US factors.
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