Japanese government bonds rose on Friday as a slide in Tokyo stocks on worries about the US auto sector and the health of the US banking system led investors to seek safety in government debt. JGB futures also took their cue from a rally in US Treasuries, which gained on a fall in share prices and worries about US jobs figures due on Friday that are expected to paint a bleak picture of the labour market.
But the lead futures erased most of their gains in a market was caught between positive and negative factors, analysts said. "As stocks were dampened to these levels, bonds were buoyed by a flight-to-quality movement," said Jun Kato, deputy general manager at Shinkin Central Bank.
"But at the same time, as more stocks fall it further strengthens the view that more bond issuance may be needed to finance economic stimulus measures. This anxiety limits gains in bond prices," he said. March 10-year futures rose as high as 139.06, failing to top a key level of 140.0, then trimmed gains to 138.64, up 0.05 point.
The futures gains narrowed partly because market players such as hedge funds adjusted positions before the lead contract expires next week, analysts said. The benchmark 10-year JGB yield fell 2 basis points to 1.290 percent, pulling back from the previous days three-week high of 1.310 percent.
The five-year yield was down 1.5 basis points at 0.725 percent. Tokyos Nikkei average shed 3.5 percent to hit a four-month low after General Motors warning of possible bankruptcy and intensified concerns about the health of the US financial sector. The broader Topix lost 2.7 percent to a fresh 25-year low.
US shares slid on Thursday with the Dow and S&P dropping, to 12-year lows. Finance Minister Kaoru Yosano said on Friday that falls in the US stock market were a concern for Japan and would have a psychological impact on the Tokyo market. He said he expects the ruling and opposition parties to discuss steps to help support Japanese share prices, but did not specify a time frame. Separately, the Nikkei business daily reported that Japans government is considering tripling to 3 trillion yen ($30.62 billion) a programme of low-interest loans and cash injections it is offering to firms in need of help.
Data showed on Thursday that Japanese companies capital spending fell 17.3 percent in October-December from the same period a year earlier. The survey suggested Japans economy probably shrank by the most since 1974 in the quarter, a Reuters poll found.
Revised GDP for the quarter will be released next week. Investors were looking to the release later in the day of the US February employment report, which is expected to show the economy shed 648,000 jobs for the month and the unemployment rate at a 25-year high of 7.9 percent.
Although investors have factored in weak numbers, they need to see how the US Treasury market reacts to the data, investors said. If US bonds climb on an expected ugly jobs report, the JGB market may follow suit, but prices gain would be limited by investor selling on rallies, they said.