TOKYO: Short-term Japanese government bonds (JGBs) rose on Friday, sending yields lower, after data showing cooling inflation reduced the urgency for early rate hikes by the central bank.
Long-term JGBs were poised for a weekly gain as consensus built that Prime Minister Sanae Takaichi’s sweeping electoral victory earlier this month would allow her to keep to a pledge of “responsible” stimulus.
The two-year yield, the one most sensitive to Bank of Japan policy rates, decreased 0.5 basis point (bp) to 1.25%.
The five-year yield slid 2.5 bps to 1.605%. Yields move inversely to bond prices.
Japan’s annual core consumer inflation hit 2.0% in January, marking the slowest pace in two years, data showed.
That’s in line with the BOJ’s projection that inflation will briefly slow below its 2% target.
Long-term JGB yields surged to record highs last month as concerns about Japan’s fiscal health swelled after Takaichi, a fiscal dove, called a snap election and pledged to cut sales taxes on food for two years.
But a measure of calm has returned to the market in recent weeks, with yields falling and resilient demand seen in JGB auctions.
“It may be that Japan’s one-party dominance system is attracting global attention amid political instability in major developed nations, thereby stimulating demand from investors who previously showed little interest in JGBs,” Ataru Okumura, a senior strategist at SMBC Nikko Securities, said in a report.
The benchmark 10-year JGB yield fell 5 bps to 2.090%.
Longer-dated securities had yet to trade but were poised for steep declines this week.
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