Japanese government bond futures dipped on Friday, tracking the previous day's falls in US Treasuries, but long-end cash bonds drew support from month-end investor demand. A batch of economic data had a limited impact. Core consumer prices in the Tokyo area rose more than expected in February year-on-year, and the jobless rate unexpectedly dropped to 4.1 percent in January.
But industrial output fell as expected by a record 10 percent in January from the previous month, showing that Japan's worst recession since World War Two is deepening. Moves in JGBs were driven mainly by month-end flows. "Investors such as pension funds, both passive and active players, mostly tend to extend their duration at the end of the month," said a trader at a European brokerage house, adding that such moves were seen on Friday morning.
JGB futures retreated after rising over half a point the previous day, having lost momentum ahead of the 140.00 level that is seen as resistance, and due to the absence of hedge fund buying that pushed the market higher on Thursday, the trader said. March 10-year JGB futures fell 0.14 point to 139.50, pulling away from a one-month high of 139.97 hit earlier this week.
The benchmark 10-year JGB yield edged down 0.5 basis point to 1.270 percent. Thirty-year JGBs fared better, with their yields dipping 1.5 basis points to 1.950 percent.
Market analysts said JGB market moves would likely stay in tight ranges for the rest of the fiscal year to March 31 unless the Nikkei average tumbles below the 7,000 level. The market will be watching Japan's next possible stimulus plan and whether it will be big enough and substantial enough to help the economy recover, he said.
If the market reckons the plan is good enough, bonds are likely to be weighed down, he said. US Treasuries fell on Thursday as the prospect of a record $1.75 trillion budget deficit highlighted the pressing need to substantially ramp up bond issuance. Next up for JGBs are auctions of 10- and 30-year bonds next week.
The 10- and 30-year JGBs could face some pressure ahead of the auctions, said Takafumi Yamawaki, an interest rate strategist for BNP Paribas Securities.