JGB futures gain on short-covering, Nikkei fall

TOKYO Nov 24 (Reuters) - Japanese government bond futures edged up on Tuesday as some market players covered short positions made late last week and the Nikkei share average fell.

* Expectations for month-end buying put downward pressure on longe-dated yields although some felt the pace of the JGB yield drop could slow after the benchmark 10-year note yield slid below 1.30 percent last week.

* On Friday the Bank of Japan kept interest rates near zero and upgraded its economic assessment, prompting some players to sell futures. But JGBs stayed firm as the government published a report hours after the rate decision pronouncing the economy officially in deflation for the first time since 2006.

* Some market players speculate that the BOJ could soon find itself under pressure to buy more government bonds to strengthen its commitment to a very easy monetary policy, analysts said. But most players remain doubtful of such a development for now.

* "The market focus on deflation is positive for JGBs for the short term," said RuiXue Xu, a rates strategist at RBS Securities Japan. "But it will be negative for JGBs in the long run because it could prompt the government to loosen fiscal discipline."

* December futures rose 0.17 point to 139.42 2JGBv1, near a six-week high of 139.56 touched on Friday.

* The benchmark 10-year yield edged down half a basis point to 1.300 percent JP10YTN=JBTC staying in sight of 1.290 percent hit last week, the lowest since mid-October.

* Longer-dated bonds were firmer with the 20-year yield down a basis point at 2.025 percent JP20YTN=JBTC. But the two-year yield edged up half a basis point to 0.245 percent JP2YTN=JBTC ahead of a sale for the maturity on Tuesday. (Reporting by Satomi Noguchi; Editing by Michael Watson)

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