JGB futures scale 22-mth peak as stocks slide more

By Eric Burroughs

TOKYO, Nov 16 (Reuters) - Japanese government bond futures punched to a 22-month high on Friday while stocks were on the ropes again due to the ongoing troubles in credit markets, adding to doubts about when the Bank of Japan could next lift interest rates.

Bond investors are giving up hope that yields will rise much in the fiscal year to next March and are starting to shift funds into the market, pushing the benchmark 10-year yield further below the psychologically key 1.50 percent.

BOJ Deputy Governor Toshiro Muto highlighted the central bank's caution on the outlook in an interview with Bloomberg, saying the U.S. housing recession and financial market turmoil made it difficult to decide when to raise rates.

The comments come after BOJ Governor Toshihiko Fukui said in a speech late on Thursday that the U.S. housing problems were a risk to global growth. [nT164555]

Minutes from the BOJ's mid-October meeting also showed most board members felt the downside risks to the U.S. economy were heightening. The BOJ kept rates on hold at 0.5 percent at that meeting and in two subsequent meetings, including one this week.

"The JGB rally is probably entering into an overshoot zone, but this situation is not going to change soon. We have to look at the U.S. economic outlook," said Tomoko Fujii, senior economist and strategist at Bank of America. "The risk aversion means JGBs should be favoured."

December 10-year futures 2JGBv1 climbed 0.29 point to 137.14 and jumped as high as 137.31, the highest since January 2006.

The benchmark 10-year yield <JP10YTN=JBTC> fell 2.5 basis points to 1.470 percent and touched a 22-month low of 1.460 percent earlier in the day.