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Japan’s Bond Futures to Correct on Ichimoku: Technical Analysis

Japanese bond futures are heading for a “correction” after rising to a seven-year high earlier this month, Mitsubishi UFJ Morgan Stanley Securities Co. said, citing trading patterns.

Ten-year futures have fallen below the so-called conversion line on an ichimoku chart, which suggests the recent run of gains is ending, said Katsutoshi Inadome, a fixed-income strategist at the unit of Japan’s largest banking group.

“The decline below the conversion line signals that buy orders will weaken over the short term,” Tokyo-based Inadome said, adding that had he changed his rating on the securities to “neutral” from “buy.”

Ten-year bond futures for September delivery closed at 141.72 today on the Tokyo Stock Exchange, after rising to 142.08 on July 22, the highest for a benchmark 10-year contract since August 2003. They fell as low as 141.55 yesterday, below the conversion line of 141.75 on the daily ichimoku chart.

Bond futures are still in a longer-term uptrend as they remain above the baseline on the ichimoku chart, which is currently at 141.30, Inadome said.

The contracts may repeat a pattern seen earlier this month when they fell below the conversion line on July 6 before returning to a rising trend on July 15, he said.

Ichimoku charts are used to predict a currency’s direction through analyzing the midpoints of historical highs and lows. The conversion line plots the sum of the highest high and lowest low over the last nine trading days. The baseline is the same calculation over the past 26 days.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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