TOKYO: Japanese government bonds edged higher on Friday morning as market participants took heart from a rise in US bonds, which were supported by safe-haven demand on worries about the European debt crisis.
The benchmark 10-year yield was poised for its second straight year of declines largely as the euro zone crisis and global economic slowdown have boosted the appeal of JGBs.
March 10-year JGB futures were up 0.08 point at 142.36, but faced strong resistance at the bottom of the daily Ichimoku cloud at 142.56.
Players expect Europe's debt woes to underpin demand for JGBs. But many players said Friday's market activity was mostly limited to minor year-end position adjustments, as Tuesday was the last day for settlement for delivery this year.
The 10-year cash bond yield inched down 0.5 basis point to 0.985 percent, off a two-week high of 0.995 percent hit on Wednesday, but keeping above a three-week low of 0.965 percent touched last week. The benchmark yield has fallen 12.5 basis points this year after dropping 17.5 basis points in 2010.
US Treasury prices rose marginally on Thursday, supported by safe-haven demand on worries that the European sovereign debt crisis may not be solved without causing significant collateral damage to the global financial system.
Japan's ruling party tax panel agreed early on Friday on a new timetable for increases in the sales tax in the face of growing opposition, with the first rise not coming until April 2014, six months later than originally planned.
Prime Minister Yoshihiko Noda has run into strife getting support, not just from the public and the opposition but also from some members of his Democratic Party. On Wednesday, nine junior members of his party handed in requests to leave over the issue.
The government plans to submit the bills to parliament by March, but passage is uncertain as opposition parties can use their control of the upper house to block legislation.
Analysts and investors said it is unlikely that investors will take action immediately as the outlook for the sales tax is still uncertain.
"We are not sure how we can take the government's plans (on the sales tax), because there will be more disputes and more people may leave the party ahead of January," said a fund manager from a Japanese asset management firm. "We can't alter postions just because of this since the situation is still very unclear."
Although uncertainty about the sales tax hike in Japan could spur yield rises, many market players expect it is unlikely for Japan will fall victim to a vicious Greek-like cycle of investors' selling, thanks to Japan's ability to finance its debt domestically.
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