TOKYO: Japanese government bond prices inched higher on Monday, helped by a slide in Tokyo's Nikkei share average as the yen hit a one-month high against the dollar on expectations of dovish comments from the US Federal Reserve's policy meeting this week.
An offer by the Bank of Japan to buy 450 billion yen ($4.6 billion) of JGBs with residual maturities of five to 10 years also supported the market.
The 10-year yield dipped 0.5 basis point to 0.780 percent, while the Nikkei shed 2.6 percent and the yen strengthened to a one-month high of 97.645 yen to the dollar.
"The Japanese equity market is heading lower and the dollar/yen broke the 98 yen level. These factors are supporting the JGB market," said Tomohisa Fujiki, interest rate strategist at BNP Paribas in Tokyo. "But at the same time there have been some reports that the consumption tax hike is not a done deal yet."
Japan's most significant fiscal reform in years -- a planned increase in the country's sales tax -- could be delayed or watered down in a move that might rattle financial markets and amount to an own goal for the prime minister.
The 10-year JGB futures were up 0.13 point at 143.76, holding above their five-day moving average of 143.68.
Japanese retail sales rose 1.6 percent in June from a year earlier, at their fastest pace since May 2012, in a sign that expectations for economic recovery are underpinning consumer spending.
US Federal Reserve policymakers are likely to have a lively debate on how best to prepare financial markets for a reduction of their bond-buying programme, but appear certain to wait for further economic data before curtailing their stimulus. The Fed releases its post-meeting statement at 1800 GMT on Wednesday.
Among the key US data this week are the second quarter GDP on Wednesday and the June non-farm payroll report on Friday.
The 30-year yield was down 0.5 basis point to 1.820 percent, while the 20-year yield was unchanged at 1.705 percent after earlier falling to 1.700 percent, a level which it has not been able to trade below since late June.
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