TOKYO: Japanese government bond yields declined on Wednesday as US Treasury yields fell, while investors weighed the outlook for the world’s largest economy ahead of Friday’s non-farm payrolls.

The benchmark 10-year JGB yield was down 3.5 basis points at 0.885% as of 0430 GMT, reversing its rise over the previous two days, while 10-year JGB futures rose 0.38 yen to 144.79 yen.

US Treasury yields fell on Tuesday after data signalled activity in the manufacturing sector remains soft.

The 10-year Treasury yield was at 3.83% in Asia trading hours on Wednesday.

The Institute for Supply Management said its manufacturing PMI rose to 47.2 in August, up from an eight-month low of 46.8 in July.

But the reading remained below 50 for the fifth straight month, indicating a contraction. Global markets remain sensitive to US growth indicators, after a weak jobs report last month sparked market stress over imminent recession risks.

A US recession would have global impact, leaving investors waiting for more clarity on its outlook.

“Given the current uncertainty about the future, it’s unclear whether Japan’s additional interest rate hikes will proceed smoothly,” said Makoto Suzuki, senior bond strategist at Okasan Securities.

Confidence that the US economy is heading for a soft landing could generate more speculation in the bond market about the Bank of Japan’s next rate hike, which most economists and market players believe will come in either December or January, he said.

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For now though, it’s hard to trade in either direction, Suzuki said.

The biggest test this week will come on Friday when US non-farm payrolls for August will be released.

Elsewhere on the curve, the 20-year JGB yield and 30-year JGB yield both slid 3.5 bps to 1.69% and 2.06%, respectively.

On the short end, the two-year JGB yield ticked down 1 bps to 0.375%, while the five-year yield fell 2.5 bps to 0.505%.