JGBs fall on U.S. Treasuries weakness, smaller BOJ buying
* Ten-year JGB futures hit three-week low
* Yields on longer maturities up 1 basis point
By Dominic Lau
TOKYO, Aug 23 (Reuters) - Yields on benchmark Japanese government bonds rose on Friday, tracking moves in U.S. Treasuries, while some market players were disappointed the Bank of Japan trimmed the size of its purchase of five- to 10-year maturities in its operations.
Sharp gains in Tokyo's Nikkei share average also dampened the appeal of government debt. The benchmark ended 2.2 percent high.
The 10-year yield added 2 basis points (bps) to 0.765 percent, moving further away from a 3-1/2-month low touched on Wednesday.
The 10-year U.S. Treasury yield last stood near 2.9 percent, having set a two-year high of 2.936 percent on Thursday.
U.S. Treasury yields had pushed higher after minutes of the Federal Reserve's July meeting on Wednesday did little to change market expectations that the U.S. central bank could start tapering its bond-buying programme as early as next month.
"Today's BOJ action actually reduced the purchase of five to 10-year sectors from 450 billion yen to 400 billion yen. That's quite negative psychologically," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.
The BOJ on Friday offered to buy a total of 1 trillion yen ($10.1 billion) of JGBs with residual maturities ranging from one to 10-years as part of its bond-buying operations to revive the world's third-largest economy. It included 400 billion yen of JGBs maturing in five to 10 years, down from previous operations of 450 billion yen.
Data released by the BOJ showed Japanese government debt held by large Japanese banks as of end June fell to its lowest level since March 2010.
Large Japanese banks, known as "mega banks", held 85.86 trillion yen of Japanese government bonds at the end of June, declining 7.4 percent from a month earlier.
Ten-year JGB futures were down 0.22 point at 143.71, after trading as much as 143.57 to a three-week low. Trading was active, with 27,308 contracts changing hands, the highest in three weeks.
The five-year yield gained 1.5 bps points to 0.305 percent.
The superlong sectors also rose, with both the 20-year and 30-year yield up 1 bps, to 1.700 and 1.815 percent, respectively.
"If Prime Minster (Shinzo) Abe's decision on consumption tax hike as slated next spring and the Fed's tapering is pushed back to later timing, the downside to the JGB yield will likely widen," Barclays Securities wrote in a note.
"In contrast, the combination of delayed consumption tax hike and the start of tapering QE3 as early as September will bring the JGB yield higher."
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