JGBs slip, hurt by profit-taking and Nikkei rise

By Masayuki Kitano

TOKYO, Dec 21 (Reuters) - Japanese government bond futures edged lower on Friday, hurt by profit-taking and a rise in Tokyo share prices.

Trading volume was thin ahead of a three-day weekend in Japan, and losses were tempered by market expectations for the Bank of Japan to hold off from raising interest rates at least until the latter half of next year.

"There is some profit-taking in long-term cash bonds and share prices are higher. It's not that big of a move," said a trader for a Japanese brokerage house.

March 10-year JGB futures slipped 0.11 point to 136.74 2JGBv1. Total trading volume was a light 13,966 lots.

The benchmark 10-year JGB yield rose 1.5 basis points to 1.530 percent JP10YTN=JBTC.

The yield curve steepened as two-year JGBs fared better, with the two-year yield falling 1.5 basis points to 0.695 percent, matching a 14-month low struck last week.

Tokyo markets will be closed on Monday for a national holiday.

A Reuters poll on Thursday showed that market players expect the BOJ to wait until the third quarter of next year to raise interest rates, as shaky global financial markets and signs of economic slowdown in Japan make it difficult to tighten credit.

The poll of 44 traders and analysts in Tokyo showed that 24 respondents see the BOJ lifting its overnight call rate target to a 12-year high of 0.75 percent in the July-September quarter next year, while just four see such a move before the end of the current fiscal year in March. [BOJ/INT]

Due to such expectations for the BOJ to take its time before raising interest rates, Friday's auction of 1.7 trillion yen ($15.01 billion) in two-year JGBs was seen likely to be well-received.

"The BOJ has downgraded its assessment of the economy and it seems like the central bank won't try to raise interest rates for a while," said Naomi Hasegawa, senior fixed income strategist at Mitsubishi UFJ Securities.

The BOJ kept interest rates on hold at 0.50 percent on Thursday. Atsushi Mizuno, the one board member who had voted consistently for an increase, fell into line as the central bank said the economy was slowing because of a domestic housing slump.

The central bank also downgraded its economic view in the first major downgrade in three years, and BOJ Governor Toshihiko Fukui said downside economic risks are heightening. [ID:nT136686] (Editing by Malcolm Whittaker)