JGBs pare losses as Nikkei reverses gains
* Ten-year JGB futures near three-month high
* Thirty-year JGB yield outperforms, down 3 bps
TOKYO Aug 8 (Reuters) - Japanese government bonds pared early losses on Thursday, driven by a sharp downward reversal in Tokyo's Nikkei share average in thin and volatile trade that saw the index end at 6-week lows.
Longer-dated JGBs outperformed, with the 20- and 30-year yield down 2.5 to 3 basis points, leading to flattening of the yield curve.
The 10-year yield added 0.5 basis point to 0.755 percent, down from an intraday high of 0.770 percent but still off a three-month low of 0.750 percent hit in the previous session.
The Nikkei ended down 1.6 percent on Thursday, after rising as much as 1.5 percent earlier, with market participants citing some investors trying to push down index options ahead of Friday's settlement.
"It's very volatile...trading volume has gone down, rock bottom right now, no matter which markets you are in," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
Volatility has increased sharply for the Japanese stock market since May 23, when the Nikkei plunged 7.3 percent after hitting a 5-1/2-year high during the day.
Since then, there have been 30 sessions where intraday swings exceeded 2.5 percent, compared with 16 for the year up to May 22 and four such days in the whole of 2012. The S&P 500 only had had 2 such trading days in 2013, and the Euro STOXX 50 had 15.
Ten-year JGB futures were steady at 144.01 after trading as low as 143.72 in the morning session. Trading volume was relatively active compared with recent days, with 22,403 contracts changing hands, hitting a four-day high.
On Thursday, the Bank of Japan kept monetary policy steady, as expected, and held off on revising up its assessment of the economy, opting to wait for more clues on whether the increasingly positive mood will encourage companies to lift spending.
"The external environment has not shown any large changes to impact the BOJ decision. The JGB market has already priced in such an outcome," said Yuya Yamashita, rate strategist at JPMorgan in Tokyo.
The Japanese central bank shocked financial markets on April 4 when it announced its plan to inject $1.4 trillion into the world's third-largest economy in less than two year to revive growth.
The 30-year yield fell 3 basis points to 1.795 percent, hitting a near two-month low, while the 20-year yield eased 2.5 basis points to 1.685 percent.
The Ministry of Finance is to sell 500 billion yen ($5.2 billion) of 30-year bonds on Friday.
Japan's Economics minister Akira Amari said the government will make a decision on whether to raise the sales tax as planned in late September through early October. Tokyo plans to raise the sales tax to 8 percent from 5 percent in April, and to 10 percent in October 2015.
The five-year yield added 1 basis point to 0.285 percent. According to International Financing Review, a Thomson Reuters publication, one Japanese megabank sold five-year debt ahead of next Tuesday's auction of 2.7 trillion yen of the same maturities.
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