TOKYO: Benchmark Japanese government bond prices fell on Monday, tracking US Treasury yields after US jobs data on Friday suggested the US Federal Reserve will begin to taper its bond-buying stimulus soon.
Domestic demand limited losses, strategists and market participants said.
"Domestic investors are interested in buying on dips for JGBs, probably 0.9 percent for the 10-year, and around the middle of 0.3 for the 5-year, because of the differences in economic conditions between the US and Japan and the differences in monetary policies," said Naomi Muguruma, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.
"We think the impact of high US yields will remain limited for the JGBs," she said.
The Bank of Japan is widely expected to maintain its ultra-easy monetary stance this week and revise up its assessment of the economy to suggest that the world's third largest economy is recovering thanks in part to the government's reflationary policies.
BoJ data released on Monday showed Japanese bank lending marked its biggest annual increase in four years in June, suggesting the central bank's aggressive monetary stimulus nudging companies to make new investments.
By contrast, the US Federal Reserve is seen as likely to begin to reduce its asset-buying stimulus. On Friday, the key nonfarm payrolls report for June showed US employers added 195,000 new jobs to their payrolls last month, beating expectations of 165,000.
That led to a sharp selloff in Treasuries, with the 10-year yield suffering its biggest one-day rise in nearly two years to their highest since August 2011.
The 10-year yield added 2 basis points to 0.875 percent, still in the 0.80 to 0.90 percent trading range which it has held for the past five weeks.
Ten-year JGB futures ended morning trade down 0.28 point at 142.27 after earlier falling to a one and a half week low of as 142.14.
The yield curve slightly steepened as the superlong tenor underperformed, with the 30-year yield rising 2.5 basis points to 1.880 percent. The 20-year yield increased 3 basis points to 1.760 percent.
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