TOKYO—Japanese government-bond yields declined Monday on increased demand for safe-haven assets, as concerns grew that China's monetary tightening could slow its economic growth and drive Tokyo shares downward.
The People's Bank of China on Friday raised its yuan reserve requirement ratio by half a percentage point for the second straight month, deepening worries that a slower Chinese economy could lead to a drop in Japanese exports to its key trading partner.
Analysts said those concerns could push government-bond prices higher in the coming sessions, even as government data released earlier in the day showed that Japan's economy grew at a slightly faster-than-expected 4.6% annualized pace in the October-December quarter.
"Players may become more concerned about weak Japanese domestic demand because external demand could languish," said Mizuho Securities chief market analyst Tetsuya Miura. Under such circumstances, "it's difficult not to hold JGBs."
Japan's GDP data showed that deflation lingers in the domestic economy as hesitant consumers force firms to lower their prices. That has strengthened the view that the Bank of Japan will maintain its very accommodative policy stance, making investors eager to buy back debt.
The GDP deflator—an indicator that gives a broad reading of price trends—worsened to a 3% decline in October-December from the previous year, compared with a 0.6% decrease in the previous quarter.
"Underlying deflation could be the reason for the Bank of Japan to hold easy monetary policy as long as possible," said Susumu Kato, chief economist at Credit Agricole Corporate and Investment Bank.""Stronger GDP numbers may not be negative for the JGB market as long as deflation persists."
The 10-year government-bond yield dropped 0.005 percentage point to 1.320%.
In the mid-term zone, the five-year yield was also down 0.005 percentage point at 0.515%.
Looking ahead, market participants were focused on a five-year JGB auction Tuesday. Japan's finance ministry is scheduled to sell 2.4 trillion yen ($26.67 billion) of the bonds with an expected coupon of 0.5%.
Given that deflation is expected to continue for a while in Japan, the tender results are likely to turn out firm, said Mitsubishi UFJ Securities strategist Katsutoshi Inadome.
Two-year cash bonds weren't traded Monday.
Elsewhere, superlong-dated JGBs were sold as sovereign-debt fears intensified in Europe, in turn making domestic investors more worried about Japanese fiscal conditions, traders said.
The 20-year yield rose 0.01 percentage point to 2.155% and the 30-year yield was up 0.015 percentage point to 2.330%.
