JGBs dip, but drop limited on economy worries

By Eric Burroughs

TOKYO, March 14 (Reuters) - Japanese government bonds slipped on Friday, nudging benchmark 10-year yields up from a three-year low, as a recovery in Tokyo shares from a slide the previous day prompted some investors to book profits in safe-haven debt.

The Nikkei average .N225 rose 0.8 percent after having tumbled more than 3 percent on Thursday as the dollar's plunge below 100 yen slammed shares of exporters and stirred more worries about the Japanese economic outlook. [ID:nT293927]

Market players were now looking to see if Japan's ruling coalition and the main opposition party can come to an agreement early next week on who will succeed Bank of Japan Governor Toshihiko Fukui, who is due to retire on Wednesday. [ID:nT271180]

Analysts have said the political tussle involving the BOJ has not been a major factor for investors because they do not expect a vacancy at the top of the central bank, at least not for very long, during a time of such financial market turmoil.

At the same time, investors believe that whoever takes the helm of the BOJ will do so at a time when expectations are leaning towards interest rates to be down rather than up as the U.S. economy's slide filters through to Japan.

"Anyone who comes in will be much less hawkish than Fukui. The question is how dovish they will be," said Maki Shimizu, an interest-rate strategist at UBS Securities.

Shimizu said the naming of the next candidates for governor and deputy governor could reinforce expectations for a rate cut, with interest-rate futures showing a roughly 50 percent chance of a quarter-point cut late this year or early in 2009.

The BOJ has kept rates on hold at 0.5 percent for more than a year.