Japanese government bond futures soared more than a full point on Friday to a five-month high, with investors dumping risky positions in stocks and shifting funds into safe-haven debt. The Nikkei average lost 2.8 percent to finish at a 5-1/2-month low as investors fretted about the global economy's health.
Data during the day showed Japanese companies unexpectedly cut capital spending in the second quarter, likely meaning the economy contracted even more than previously estimated during the April-June period. JGB futures reversed a sharp slide the previous day in what analysts said were very thin conditions where it is easy for players to shove the market around. But analysts also said that 10-year yields would likely have a tough time falling below their four-month low of 1.400 percent as long as the Japanese economy does not deteriorate much more and the Bank of Japan keeps interest rates on hold.
"Our view is that these are highly volatile markets going nowhere," said John Richards, head of Asia economics and strategy at RBS Securities. "With the central bank on hold and the economy probably in a mild recession, we're stuck in this situation." September 10-year futures soared 1.18 points to 138.68. They hit a five-month peak of 139.09 and remained firm throughout the day.
Despite the second day of big price actions, trading volume in the lead contract stayed below Thursday's 63,771, the highest in four months, as many market players refrained from taking big positions before US jobs data later in the day.
Futures had slid sharply the previous day when some foreign hedge funds, such as commodity trading advisers, rushed to liquidate long positions before the lead contract rolls over to December next week.
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