Japanese government bond prices were firmer on Friday, helped by month-end buying by pension funds and caution over the health of the global economy, although they underperformed stocks in the Japanese financial year that ends this month. Some market players expect profit-taking to set in as soon as the new financial year begins next week as the market will likely need to brace for an increase in government debt sales from next month.
At some point in the next quarter, the market is likely to focus on the parliamentary debate over raising sales tax, which Prime Minister Yoshihiko Noda's cabinet finally managed to send to parliament on Friday after long negotiations between the governing coalition parties.
The Japanese government on Friday formally approved a plan to double sales tax to help reduce the country's deficit, setting the stage for a parliamentary showdown that could deepen political paralysis. The current parliamentary session is scheduled to run until late June, although it can be extended.
"Everyone knows the political battle over the tax will reach a climax in June, so many investors may well think it unwise to buy JGBs ahead of that," said Keiko Onogi, senior JGB strategist at Daiwa Securities Capital Markets. The current 10-year JGB yield fell 1.0 basis point to 0.980 percent, a two-week low, while the 20-year bond yield fell 2.0 basis points to a one-month low of 1.740 percent on month-end buying by Japanese pension funds.
The market also drew support from firmness in US bonds, and market players said gains in Spanish and Italian bond yields in recent weeks were rekindling fear over Europe's debt problems For the financial year ending March 31, the 10-year yield dropped 27.5 basis points. Nomura BPI, a major Japanese bond performance index, returned about 2.9 percent in the year.
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