JGBs rises after few data surprises, eye on tankan

TOKYO, June 29 (Reuters) - Japanese government bonds inched up on Friday, supported by a slightly soft reading on Tokyo consumer prices, while other data that came within expectations further convinced investors that an interest rate hike may come as early as August.

Investors now await the BOJ's tankan quarterly business sentiment survey due out on Monday for further clues on the timing of the next rate hike.

JGBs edged higher after core Tokyo prices, which exclude fresh food prices, unexpectedly fell 0.1 percent in June from a year ago, while nationwide CPI slipped 0.1 percent in May, in line with forecasts.

"The fall in Tokyo consumer price data was surprisingly soft, and that may be supporting JGBs," said Katsutoshi Inadome, strategist at Mitsubishi UFJ Securities. "But players are also cautious ahead of the tankan survey."

JGBs brushed off a fall in U.S. Treasuries overnight after the Federal Reserve said it remained worried about inflation while leaving benchmark interest rates on hold at 5.25 percent.

September futures 2JGBv1 rose 0.06 point to 131.62, staying close to a three-week high of 132.07 struck on Thursday.

March euroyen futures JEYv1 rose half a basis point to 98.865.

The benchmark 10-year yield JP10YTN=JBTC was down 1.5 basis points at 1.900 percent while the yield on five-year notes JP5YTN=JBTC slipped half a basis point to 1.510 percent.

Other data showed that household spending rose 0.4 percent in May from a year earlier, near the 0.5 percent forecast, while the May jobless rate was unchanged from a nine-year low of 3.8 percent in April, just below forecasts for 3.9 percent.

The data kept intact the view that BOJ may boost interest rates by 25 basis points to a 12-year high of 0.75 percent in August.

BOJ Governor Toshihiko Fukui said on Thursday that the central bank would adjust interest rates gradually based on the view that sustained growth would ensure gradual price rises. Bonds had jumped early this week as market players covered short positions created during a sell-off in June that drove futures to a seven-year low on concerns about spiking global yields and growing expectations of an August rate rise.

Swap contracts on the overnight call rate JPONIBOJ=TRDT show a 76.0 percent chance that the BOJ will lift rates in August, down from a peak near 90 percent earlier in the month.