JGBs slide on upbeat industrial output data, BOJ eyed
* Lead JGB futures fall 0.60 pt to 136.70 2JGBv1
* JGBs slide after industrial output rises more than expected
* Upbeat forecasts for manufacturers' output hurt JGBs
* BOJ expected to keep rates at 0.10 pct
* Focus on how far BOJ may slash economic forecasts
TOKYO, April 30 (Reuters) - Japanese government bonds fell on Thursday after data showed a bigger-than-expected rise in industrial output, offering some hope that Japan's recession-hit economy may be starting to stabilise.
The futures-driven drop in JGBs came after U.S. Treasuries sold off the previous day after the Federal Reserve said the pace of deterioration in the U.S. economy appeared to be slowing. [US/] [ID:nN29437778]
But the biggest impact was from the upbeat Japanese industrial output data, said Naomi Hasegawa, senior fixed-income strategist at Mitsubishi UFJ Securities.
"While it is uncertain whether things will turn out this way, the forecasts for manufacturers' output point to a steady improvement in April and May," Hasegawa said.
"Equities are rising and bonds are starting out weaker because of this," she said.
Japan's industrial production rose 1.6 percent in March, government data showed, more than a median market forecast for a 0.8 percent rise. The data also showed manufacturers expect output to rise 4.3 percent in April and increase 6.1 percent in May. [JPIP1=ECI] [ID:nT364663]
Lead June 10-year JGB futures fell 0.60 point to 136.70 2JGBv1. A fall below the low of 136.39 hit earlier in April would take futures to a six-month low.
Total volume was a relatively active 15,639 contracts.
The benchmark 10-year JGB yield rose 3.5 basis points to 1.445 percent JP10YTN=JBTC, edging back towards a five-month high of 1.490 percent hit earlier this month.
BOJ SEEN HOLDING FIRE
The Bank of Japan is expected to cut its economic forecasts at a policy review on Thursday but keep interest rates unchanged at 0.10 percent and hold off from taking new monetary policy initiatives. [ID:nT74081]
Amid some signs that the economy is stabilising, now is probably not the time the BOJ will feel the need to take additional action, said Jun Fukashiro, chief fund manager for Toyota Asset Management.
Instead, the focus will be on how far the BOJ downgrades its economic outlook, Fukashiro said. While the near-term market impact could be limited, cuts to the central bank's economic forecasts could have market implications down the road, he said.
"If they are going to make a downward revision, what lies beyond that is that they will need to prepare some kind of policy," Fukashiro said.
A big downward revision could fuel expectations for the BOJ to eventually take further action on monetary policy, he said.
The government cut its economic forecast this week, predicting Japan's economy would shrink 3.3 percent in the year to next March, worse than its previous estimate for zero growth, as the world's No.2 economy remains in the grip of the worst recession since World War Two. [ID:nTKU103386] (Editing by Chris Gallagher)
