JGBs slip as weaker yen dashes BOJ easing expectations

TOKYO, Sept 18 Mon Sep 17, 2012 11:08pm EDT

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TOKYO, Sept 18 (Reuters) - Japanese government bonds fell across the curve on Tuesday, on growing scepticism the Bank of Japan will follow the U.S. Federal Reserve in taking stimulus steps.

* At its two-day policy meeting ending on Wednesday, strategists are mixed on whether the BOJ will muster new stimulus steps, though most expect the central bank to keep easing hopes alive by presenting a dimmer view of Japan's economy. Some say the BOJ could decide to act to stem any rise in the yen, which briefly strengthened after the Fed's aggressive easing move last week.

* The Fed said on Thursday that it would purchase $40 billion of mortgage-backed debt per month until it sees improvement in the employment situation. It also decided to extend its time frame for maintaining its current low interest rates until at least mid-2015, from its previous plan through late 2014.

* The JGB sell-off was limited by caution ahead of the BOJ meeting, as well as by expectations of dip-buying ahead of large quarterly JGB redemptions on Thursday. Japanese markets were closed for a public holiday on Monday.

* "The yen has weakened from highs hit last week, and Japanese stocks appear to be holding up despite concerns about the ongoing unrest in China, so there would appear to be less compelling reasons for the BOJ to take steps at this meeting," said a fixed-income fund manager at a Japanese trust bank.

* Japanese shares were mostly steady as support from the weaker yen offset fears about the impact of anti-Japan protests in China, as tensions rose over a territorial dispute.

* The 10-year JGB futures contract for December ended morning trade down 0.22 point at 143.65 after falling as low as 143.48, matching a low hit last Thursday which was its lowest level since Aug. 21.

* The yield on the benchmark 10-year cash bond rose 2 basis points to 0.815 percent after rising as high as 0.825 percent, moving back toward a three-week intraday high of 0.835 percent hit on Thursday.

* The yield curve steepened as the superlong sector lagged, with the 20-year bond yield adding 2.5 basis points to 1.680 percent and the 30-year yield also rising 2.5 basis points to a five-month high of 1.925 percent.

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