While there is lingering view that interest rates in Japan will not stay effectively at zero after the end of the five-year-old 'quantitative easing' last week, stronger-than-expected non-farm payroll data enhanced worries about further rate increases in the US.
Bonds will find it hard to rise today. The fundamental trend that the economy is recovering has not changed.
The Nikkei is weak and that will support bonds.
The chances of 10-year yields soaring above 1.6 percent are high. Ten- year bonds look expensive compared with five-years and so it could take some time for dealers to sell all the bonds onto investors.
The decline in stocks yesterday was not the start of a trend. At this level investors should sell bonds.
On top of a heavy auction schedule in January, if a rise in consumer prices is confirmed, the market will shift its focus to the approaching timing of a BOJ policy shift and keep up pressure especially on the shorter maturities.
Investors may start worrying that the central bank will scale back its monthly bond purchases to reduce the amount of money in the system. That will push up yields further.