JGBs rise, buoyed by yen's surge to 14-year high

* JGB futures match 7-wk high, 10-yr yield equals 7-wk low

* Yen's rise to 14-yr high vs dollar supports JGBs

By Masayuki Kitano

TOKYO, Nov 26 (Reuters) - Lead 10-year Japanese government bond futures matched a seven-week high on Thursday,supported by worries that the yen's surge to a 14-year peak against the dollar may add to deflationary pressure on the economy.

JGBs have rallied over the past couple of weeks, reversing course after they were sold off earlier in November on worries over rising debt issuance.

Lending support to JGBs this week have been the weakness of Tokyo equities and a higher yen, which vaulted to a 14-year high against the dollar near 86.30 yen JPY= on Thursday.

"It is a positive factor, since it can be a bit deflationary," said Junji Kojima, senior deputy manager at Sompo Japan Insurance's global securities investment department, referring to the yen's rise. Due to market expectations for the Bank of Japan to keep interest rates low for a prolonged period and with investors seen having ample cash to invest in JGBs, the 10-year yield could dip below 1.2 percent by year-end, Kojima said.

December 10-year JGB futures rose 0.15 point to 139.50 2JGBv1 after climbing as high as 139.63, matching a seven-week high hit the previous day.

The benchmark 10-year JGB yield fell 1.5 basis point to 1.280 percent JP10YTN=JBTC, equalling a seven-week low hit the previous day.

A climb in the yen is seen as positive for JGBs as it can raise concerns about the outlook for Japanese exporters' earnings and also because it can lower import prices and add to any deflationary pressure.

The yen's rise against the dollar may also stir talk about the potential for further monetary easing measures from the Bank of Japan, said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities.

Extra BOJ easing measures that market players see as possibilities include increases to the BOJ's outright purchases of JGBs, or making more explicit a commitment to stick to very low interest rates, Yamashita said.

But the chances of such measures being adopted soon seem low, he said. "It will be hard to justify additional easing measures unless there is a major downward revision to the (BOJ's) economic scenario," Yamashita said. (Editing by Joseph Radford) ((masayuki.kitano@thomsonreuters.com; Reuters Messaging: masayuki.kitano.reuters.com@reuters.net; +81-3-6441-1872)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com))