JGBs firm as investors await BOJ policy decision

TOKYO Wed Dec 19, 2012 9:53pm EST

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TOKYO Dec 20 (Reuters) - Japanese government bonds rose on Thursday, pushing benchmark yields away from a nearly 7-week high hit in the previous session, as investors await the conclusion of a Bank of Japan meeting at which it is expected to take further easing steps.

* The BOJ is expected to deliver its third dose of monetary stimulus in four months after its two-day meeting, with more aggressive action seen as likely next year, as the central bank faces intensifying pressure from Shinzo Abe, the country's next leader, to boost efforts to beat deflation.

For now, the BOJ will likely stick to its existing framework of expanding its 91-trillion-yen ($1 trillion) asset buying and lending programme, probably by 10 trillion yen, analysts say.

The BOJ will also announce details of a new loan programme on Thursday that it unveiled in October to supply banks with cheap long-term funds without limiting the amount of cash made available.

* Yields on cash 10-year JGBs fell 2 basis points to 0.760 percent, after rising as high as 0.780 on Wednesday, their highest level since Nov. 2.

* The 10-year JGB futures contract was on track to snap a five-session losing streak, ending morning trade up 0.20 point at 144.08. On Wednesday, futures hit an intraday low of 143.70, their lowest since Sept. 20.

* A stock-market correction also added to the appeal of safe-haven fixed income assets. The Nikkei stock average slumped 1 percent, after a rally on Wednesday pushed the index to end above 10,000 for the first time since early April.

* "Some adjustments are to be expected after Wednesday's market moves, although the JGB market activity is not so active as investors await the BOJ," said a fixed-income fund manager at a Japanese asset management firm in Tokyo.

"We need to get the BOJ meeting out of the way," he added.

* The recently battered superlong sector outperformed on Thursday, with life insurers said to be buying, though flows were said to be light. Long maturities suffered in recent weeks amid concern that Abe's reflationary policies could lead to inflation in the long term.

Yields on 20-year bonds fell 2.5 basis points to 1.720 percent after rising as high as 1.750 percent in the previous session, their highest since early April.

Yields on 30-year bonds lost 3.5 basis points to 1.955 percent.

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