JGBs fall on weak Treasuries, BOJ rate concerns
By Chikako Mogi
TOKYO, July 13 (Reuters) - Japanese government bonds fell on Friday, hit by weak U.S. Treasuries and comments by Bank of Japan Governor Toshihiko Fukui the previous day that 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 by 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 their 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 -- likely 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 0.15 point at 131.65 2JGBv1.
The benchmark 10-year yield was up 2 basis points at 1.920 percent JP10YTN=JBTC while the five-year yield also rose 2 basis points to 1.510 percent JP5YTN=JBTC.
Lead March euroyen futures JEYv1 fell 0.015 to 98.855.
"Barring any unexpected events, the BOJ has made it clear it intends to raise interest rates next month," said Koji Ochiai, a senior market analyst at Mizuho Securities.
"From here on, the market will likely take its cue from external developments while keeping positions neutral, avoiding one-sided bets," he said.
Traders said that since bond yields already reflect widely held market views for an August rate rise, selling will only accelerate when there is clearer evidence that prices are picking up faster than previously thought.
The BOJ kept its assessment of Japan's economy unchanged in its monthly report on Thursday, saying it is expanding moderately and while consumer prices are likely to be around zero percent in the near term, they are on an upward trend over the long term.
The BOJ also said wholesale prices are seen moving higher than forecast this fiscal year, ending next March 31.
U.S. Treasuries slipped on Thursday as the Dow Jones industrial average .DJI 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.
