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JGBs dragged down by Nikkei's rise, hedge sales

TOKYO: June 10-year Japanese government bond futures: closed moderately lower in Tokyo on Friday as sentiment for JGBs was dampened by the Nikkei stock index's gain, traders said.

The June contract fell in the afternoon as Japanese investors sold heavily for hedging purposes. Technical sales also intensified ahead of the weekend as the June contract struggled to advance above 131 despite on Wednesday's healthy 10-year JGB auction.

The market thinness may have exaggerated the downtrend, but the June contract was well supported as it approached key technical support at 130.50, they said.

After the latest Policy Board meeting, the Bank of Japan said on Friday that it decided to maintain its zero interest rate policy. The market showed muted reaction as the result was widely expected.

June futures ended the Tokyo session at 130.62, down 0.24 point from 130.86 on Thursday. They moved in a range of 130.61 to 130.87. Turnover amounted 16,654 lots. The yield on 221st JGB stood at 1.860 percent, up 0.015 percentage point from 1.845 on Thursday.

"The Nikkei's rise and the yen's recent weakness weighed on JGB prices," a Japanese brokerage trader said. "But activity was subdued as many operators were sidelined ahead of the book closings" for the fiscal year ending March 31.

The benchmark Nikkei average ended up 253.48 points or 1.29 percent at 19,958.08, after briefly rising above the key psychological level of 20,000 for the first time since March 6.

"Trade is getting quieter and quieter everyday before year-end," a city bank trader said. "What we see now is some minor position adjustment eyeing next week's industrial output data, and tankan."

The Bank of Japan is to release its widely watched "tankan" business sentiment survey on April 3, which should shed light on whether Japan's economy is firmly on the road to recovery.

The market is nervously awaiting the survey, especially after some recent bullish economic data. Capital spending rose in the final quarter of 1999, leading the Economic Planning Agency and the BOJ to upgrade slightly their assessments of the economy.

Short-term interest rates remained under upward pressure on Friday as financial institutions stockpiled funds needed to settle accounts ahead of the fiscal year-end.

Adding to the upward pressure is fear about possible computer-related problems on March 31, the first book closing of the new millennium.

Money traders said one-week call money covering March 31 traded at 0.43 percent.

The key overnight call rate was hovering around 0.02 percent, unchanged from Thursday's weighted average.

On Friday, brokers estimated that the BOJ left a projected net surplus of 1.8 trillion yen after its regular operation, compared with 1.6 trillion on Thursday.

Money traders said the larger surplus is seen aimed at alleviating upward pressure on short-term interest rates ahead of book-closing.

September TIBOR-based euroyen futures closed the regular day's session at 99.635 compared with on Friday's day-session settlement of 99.665. -Reuters