Japan bonds drift ahead of US jobs data, BOJ policy meeting

By Kevin Buckland

TOKYO, Dec 16 (Reuters) - Japanese government bonds (JGBs) barely budged on Tuesday as traders mainly remained on the sidelines ahead of crucial U.S. jobs figures later in the day, and a Bank of Japan policy decision this week.

The yield on 10-year JGBs JP10YTN=JBTC was flat at 1.955%, as of 0405 GMT.

Benchmark 10-year JGB futures 2JGBv1 were also little changed at 133.40 yen.

Yields move inversely to bond prices.

The Bureau of Labor Statistics will release its long-awaited combined employment reports for October and November later, following delays to data collection during the longest U.S. government shutdown in history.

Meanwhile, traders fully expect the BOJ to raise interest rates by a quarter point on Friday, putting most of the focus on Governor Kazuo Ueda's post-meeting news conference for clues on the path for policy in 2026.

Two-year JGBs JP2YTN=JBTC, which are especially sensitive to the outlook for monetary policy, had yet to trade on Tuesday. Five-year notes JP5YTN=JBTC also hadn't changed hands.

In the super-long sector, the 20-year yield JP20YTN=JBTC and 30-year yield JP30YTN=JBTC each edged 1 basis point lower to 2.915% and 3.355%, respectively.

Those yields hit record peaks earlier this month at 2.935% and 3.445%, respectively, driven mostly by worries about Japan's finances after the new government approved the biggest spending package since the pandemic.

However, economists at Morgan Stanley MUFG Securities say those concerns are overblown.

"Investors have increasingly been inquiring about Japan's fiscal health," Takeshi Yamaguchi and Masayuki Inui wrote in a client note.

"Although large supplementary budgets have become the norm in recent years, the expenditure amounts recorded in the budget are not necessarily fully spent," and "despite a seemingly large headline size, the planned issuance of new government bonds for fiscal year 2025 after the supplementary budget is actually lower than the prior year," they said.

"Undue worry is unnecessary."