JGB futures fall on profit grab after Treasuries dip
* Futures take cue from Treasuries' drop to book profits
* Fall may prompt investors to again pick up bonds on dips
TOKYO, Aug 22 (Reuters) - Japanese government bond futures fell back on Friday from a four-month high after U.S. Treasuries dropped on a big bounce in oil prices above $120 that revived inflation fears.
Analysts said the overall direction of futures had become less affected by overseas markets lately, but some investors took their cue from losses in Treasuries to book profits from recent strength in Japanese debt. [US/]
JGBs have been firm for the past month, shrugging off sporadic sharp falls that sparked renewed buying due to expectations that a global slowdown would bog down Japan.
The outlook for a weaker economy has reinforced expectations that the Bank of Japan will keep rates steady in the coming months.
Some in the market even see a possible interest rate cut by early next year, although Bank of Japan Governor Masaaki Shirakawa this week cooled such expectations by reiterating the view that the economy would eventually return to moderate growth.
"The market is lately focusing on long-term factors such as the domestic economic slowdown and U.S. financial sector worries," Kazuhiko Sano, chief fixed-income strategist at Nikko Citigroup, said in a client note.
Such bond-supportive factors have helped the market hold gains and push JGB yields down to four-month lows, analysts said.
September futures fell 0.29 point to 137.74 2JGBv1, stepping back from a four-month high of 138.12 reached last week, even as the Nikkei share average .N225 slid to its lowest point in nearly five months. [.T]
The benchmark 10-year yield climbed 3 basis points to 1.440 percent JP10YTN=JBTC, off a four-month low of 1.410 percent hit the previous day.
The five-year yield rose 2 basis points to 1.010 percent JP5YTN=JBTC, above a four-month low of 0.980 percent touched last week.
"The yield levels such as 1.4 percent for the 10-year bond and 1.0 percent for the five-year note have been a strong resistance, and will be so for a while," said Keiko Onogi, a senior JGB strategist at Daiwa Securities SMBC.
On the other hand, strong investor demand for the bonds should keep a lid on any spike in yields, even before next week's bond auctions, Onogi said.
The Ministry of Finance will sell new 20-year bonds and two-year notes next week, followed by an auction of 10-year bonds the following week.
Dealers typically sell the bonds before auctions for new JGB issues to make room on their books, which in turn lifts yields and prompts investors to go bargain hunting for the debt, market players said.
The 20-year yield climbed 3.5 basis points to 2.100 percent JP20YTN=JBTC and the two-year yield edged up a basis point to 0.685 percent JP2YTN=JBTC.
Minutes released on Friday of the Japanese central bank's July 14-15 meeting showed that some board members said it needed to monitor the degree of slowdown in economies worldwide as this was starting to affect Japanese exports. [ID:nTKF003010]
Treasuries fell on Thursday as the largest jump in crude oil prices in over two months rekindled worries about inflation. Traders were also squaring off positions in case of any surprise from Federal Reserve Chairman Ben Bernanke, who is scheduled to speak on Friday. [ID:nN21283859] (Editing by Michael Watson)
