Japan Bond Auction Yields Lowest Demand in Months Ahead of BOJ Meeting

Japan's government bond market sent a warning signal on June 22 with its five-year Japanese government bond auction drawing weaker demand. The bid-to-cover ratio, which measures how many bids came in for each bond on offer, fell to 3.11, down from 3.22 at the prior sale and below the trailing average of 3.47.

The weak yen has been trading above 160 per US dollar, a level that historically triggers inflation anxiety in Japan due to its impact on import prices. This raises questions about how fast the Bank of Japan will feel pressure to lift rates.

Higher interest rates are bad news for existing bondholders as yields rise and the price of bonds falls. The result gave traders another reason to stay cautious ahead of the upcoming BOJ policy meeting, although some analysts believe declining oil prices have eased near-term inflation pressures.