JGBs fall on weak Treasuries, BOJ rate concerns

TOKYO, July 13 (Reuters) - Japanese government bonds fell on Friday, hit by weak U.S. Treasuries and comments from Bank of Japan Governor Toshihiko Fukui the previous day which were seen as signalling a rate hike as early as August.

After keeping interest rates unchanged at 0.5 percent on Thursday, Fukui told reporters the broad trend in the economy is moving in line with the BOJ's scenario, and that "if this continues, we can undoubtedly shift policy in the future."

Fukui also said "the conviction among board members is growing rather than retreating that the economy has been moving in line with our scenario."

"Comments from Fukui confirmed market views that the central bank is on its way to raising interest rates," said a bond strategist at a U.S. securities firm.

"JGBs are also taking the cue from weak U.S. Treasuries."

Fukui's comments further cemented market expectations for a rate hike next month.

A Reuters poll on Thursday of 57 traders and analysts in Tokyo's currency and bond markets found that 45 expect the BOJ's next interest rate hike -- to a 12-year high 0.75 percent -- in August, with two out of three forecasting a subsequent rate rise in January or February of 2008. [ID:nTKB002811].

JGB 10-year futures were down 0.25 point at 131.55 2JGBv1.

The benchmark 10-year yield was up 2.5 basis points at 1.925 percent JP10YTN=JBTC while the five-year yield also rose 2.5 basis points to 1.515 percent JP5YTN=JBTC.

Lead March euroyen futures JEYv1 fell 0.020 to 98.850.

U.S. Treasuries slipped on Thursday as the Dow Jones industrial average scored its first gain of more than 200 points in a year and its biggest point climb since 2002, drawing investors to stocks from bonds.

Losses were modest, however, as analysts said the risk of a weak U.S. retail sales report on Friday and unease about securities backed by subprime mortgages made bond sellers cautious.

Japanese financial markets will be closed on Monday for a national holiday.