JGB yields edge down with US peers as Powell signals rate cuts

Japanese government bond (JGB) yields ticked down on Monday, mirroring declines in US Treasury yields after Federal Reserve Chair Jerome Powell said "the time has come" for the central bank to cut interest rates.

US Treasury yields, with which JGB yields tend to move in tandem, sank on Friday after Powell delivered his strongest signal yet that interest rates are coming down most likely at the next policy meeting in September.

The decline in their US peers sent JGB yields sliding across the curve, with the benchmark 10-year JGB yield down 1.5 basis points (bps) at 0.875 per cent.

Meanwhile, 10-year JGB futures rose 0.17 yen to 144.81 yen.

But stronger-than-expected US labour data or an easing in market bets for rapid cuts could cause a rebound in US Treasury yields, in turn creating upward pressure on JGB yields, said Ryutaro Kimura, a fixed income strategist at AXA Investment Managers.

"Current short-term US interest rates seem to be pricing in a more rapid rate cut than the scenario envisioned by the Federal Reserve," he said.

The moves in JGB yields on Monday reversed some of the rise seen in the previous session. Bank of Japan (BOJ) Governor Kazuo Ueda, speaking before Japan's parliament on Friday, indicated his readiness to continue policy tightening if inflation and economic growth remained on track.

The central bank's decision to raise rates in July was seen as a factor in the collapse of the Japanese stock market earlier this month.

Yields had also fallen sharply in early August, sending many hedge funds who had taken up short positions packing, Kimura said, adding there will likely be less upward pressure on yields until those market players return.

The 20-year JGB yield and 30-year JGB yield fell 1 bp to 1.69 per cent and 2.07 per cent, respectively.

The two-year JGB yield ticked down 0.5 bp to 0.36 per cent.