* Ten-year JGB futures steady in light trade
* Long-dated 20-year yield adds 0.5 basis point
* Japan's five-year CDS steady
TOKYO, July 29 Japanese government bond prices
inched lower on Monday as concerns grew that a planned sales tax
increase might be delayed or watered down, though a sell-off in
Tokyo's Nikkei share average offered support to the debt market.
"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."
The 10-year yield added 1 basis point to
0.795 percent, reversing its early fall to 0.775 percent, even
though the Nikkei shed 3.3 percent, its biggest one-day
drop since June 13, and the yen strengthened to a
one-month high of 97.635 yen to the dollar.
Despite holding the strongest political mandate of any prime
minister in years, there are signs Shinzo Abe is seriously
rethinking the plan out of concern it could derail a nascent
economic recovery he has crafted with an aggressive policy mix,
The country's debt is more twice the size of its economy.
Government sources familiar with the matter said Prime
Minister Shinzo Abe has ordered a study of the economic impact
of various alternatives for implementing the planned sales tax
increase, including a plan for more gradual 1 percent annual
Bank of Japan Governor Haruhiko Kuroda said the sales tax
increase would not hurt the economy and was needed to repair
public finances, however.
"If the consumption tax is not going to be hiked, there
should be large additional (JGB) issuance in the next fiscal
year due to the shortage of tax revenue," said Akito Fukunaga,
chief rates strategist at Royal Bank of Scotland in Tokyo.
"It could also lead to a possible downgrade by leading
credit rating agencies, so the fiscal risk could be factored
into JGB yields."
The 10-year JGB futures were flat at 143.63, with
13,329 contracts changing hands, versus the last two week's
daily average of 17,614.
Japan's five-year credit default swaps were steady at 63/67
"I don't think the main buyers, the life insurance
companies, really care about the fiscal problems. The actual
impact could be limited," said a fixed income fund manager at a
Japanese asset management in Tokyo.
On Monday, the Japanese central bank offered to buy 450
billion yen ($4.6 billion) of JGBs with residual maturities of
five to 10 years also supported the market, as part of its
radical monetary policy to pull the economy out of deflation.
The 20-year yield was up 0.5 basis point at
1.710 percent after earlier falling to 1.700 percent, a level
which it has not been able to trade below since late June.
The 30-year yield was unchanged at 1.825
U.S. 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
Among the key U.S. data this week are the second quarter GDP
on Wednesday and the June non-farm payroll report on Friday.