Japanese government bond futures inched down on Wednesday, slipping from a seven-week high hit the previous day, as a jump in Tokyo stocks tempered demand for safe-haven debt. But losses in JGBs were limited after US Treasuries rose the previous day, when comments on inflation from a top Federal Reserve official supported expectations US interest rates are likely to stay low for some time.
"JGBs are being shored up by concerns over further tightening in China and the situation in Greece, although limited participation is another factor that's limiting selling in the market," said Shinji Nomura, chief fixed-income strategist at Nikko Cordial Securities.
Market players said many investors were keeping to the sidelines, winding down their investment activity ahead of the March 31 fiscal year-end. Immediate focus was on the Bank of Japan's two-day policy meeting that began on Wednesday. The central bank is expected to keep interest rates at 0.1 percent and hold off on any new initiatives, as it expects Japan to avoid another recession.
But analysts say the BoJ, under persistent pressure from the government to fight deflation, could ease monetary policy again in the future if market shocks, such as a sharp rise in the yen or a steep fall in shares, threaten an economic recovery.
March JGB futures edged down 0.09 point to 139.61. The lead contract rose to 139.76 on Tuesday, its highest since December 30, after a well-received five-year debt auction pointed to strong investor demand. The benchmark 10-year yield rose 0.5 basis point to 1.325 percent, and the five-year yield was unchanged at 0.500 percent.
The 20-year yield inched down 0.5 basis point to 2.165 percent as some long-term investors hunted for bargains after the yield hit a three-month high of 2.170 percent the previous day. The five-year/20-year yield spread narrowed slightly to 166.5 basis points, off 167 basis points reached on Tuesday, its steepest in a decade according to historical data on Reuters EcoWin.