JGBs inch up on relief buying after BOJ rate rise

TOKYO, Feb 22 (Reuters) - Japanese government bonds, except shorter maturities, rose on Thursday on relief buying after the Bank of Japan raised interest rates but suggested the pace of future monetary tightening would be slow.

The BOJ board voted 8-1 on Wednesday to lift the overnight call rate by 25 basis points to 0.5 percent, taking it to its highest since 1995. The market had been evenly split on whether the BOJ would make such a move this month.

"Investors are just relieved to get a rate increase out of the way, as speculation of a rate hike had kept them cautious about buying aggressively," said a dealer at a Japanese bank.

BOJ Governor Toshihiko Fukui said after the rate decision on Wednesday that the central bank would raise rates slowly, and he expected only a modest rise in consumption and did not see a rapid rise in wages.

Fukui's remarks, as well as the fact that one of the two deputy governors, Kazumasa Iwata, opposed the rate increase, boosted market views that the BOJ would be unable to raise rates successively.

"It took them seven months to raise rates a second time, so market expectations are that it will take as much time before the BOJ boosts rates again," said Chotaro Morita, chief JGB strategist at Deutsche Securities.

The BOJ raised interest rates for the first time in six years in July 2006.

A Reuters survey of 59 market participants, conducted after the BOJ decision, showed 25 expect the BOJ to boost the overnight call rate to 0.75 percent in the July-September quarter while 26 see the second hike in last three months of this year.

March futures 2JGBv1 traded up 0.06 point at 134.53, sliding from session highs of 134.71. On Wednesday, futures trading volume hit 76,495 in the afternoon session, the highest since a massive sell-off in June 2003.

The benchmark 10-year JGB yield JP10YTN=JBTC slipped 1.5 basis points to 1.675 percent.

The five-year yield JP5YTN=JBTC rose two basis points to 1.230 percent while two-year JGBs, the most sensitive to interest rate swings, underperformed other maturities, with the yield rising four basis points to 0.840 percent, the highest in over a month.

Three-month euroyen futures JEYv1 traded one basis point lower at 99.265, hovering near a four-month low of 99.250 hit on Wednesday.

The overnight call money market was stable, with overnight call rates trading around 0.53-0.55 percent, near the BOJ's new policy target of 0.50 percent.