* Position adjustments dominate, many investors on sidelines
* BOJ Kuroda's comments on long-term rates help market
* Super-long bonds underperform after weak BOJ operation
* JGBs could gain if no major surprise from Fed
By Hideyuki Sano
TOKYO, June 19 Japanese government bonds were
mixed on Wednesday in a move characteristic of low liquidity as
many investors refrained from trading, looking to how the U.S.
Federal Reserve plans to scale back its stimulus programme.
The seven to 10-year zone edged up slightly, while shorter
maturities as well as super-long bonds were weaker, as traders
adjusted their positions ahead of the Fed's policy announcement
at 1800 GMT Wednesday and Chairman Ben Bernanke's news
The 10-year JGB futures price, which reflects the
cheapest-to-deliver seven-year zone, closed up 0.04 point at
142.99. Trade volume was low with only 22,894 lots changing
hands, just two-thirds of the average daily volume.
Comments from Bank of Japan Governor Haruhiko Kuroda that he
will do the utmost to avoid sharp rises in long-term interest
rates helped the market slightly - but not to an extent that it
offset selling in superlong bonds.
"The market reacted slightly positively to Kuroda's
comments," said Naomi Muguruma, senior strategist at Mitsubishi
UFJ Morgan Stanley Securities.
The 30-year bond yield rose 3.0 basis points to 1.830
percent while the 20-year JGB yield rose 2.0
basis points, after the BOJ's buying on Wednesday
in that sector produced weak results.
The five-year yield also rose 0.5 basis point to 0.320
In contrast, the yield on the 10-year cash bonds fell 1.0
basis point to 0.810 percent.
The benchmark yield has been stuck in the 0.8-0.9 percent
range for nearly three weeks, keeping some distance from a
13-month high of 1.0 percent hit last month.
"On the whole, the market has been calming down. That
suggests that many people are now prepared for a rise in bond
yields," said Tadashi Matsukawa, head of fixed income investment
at PineBridge Investments in Tokyo.
"Of course, a lot depends now on what Bernanke will say. But
if he doesn't radically change the market's perception, the JGBs
are likely to gain," Matsukawa added.
Investors think Bernanke might signal the Fed will start
trimming its bond buying in September while stressing that
stimulus will be gradually tapered and a rate hike is still not
on the horizon.
If the Fed policy meeting does not disappoint financial
markets too much, JGBs could see fresh bids from investors,
market players said.
"JGBs look more resilient to rally in risk assets because
the impact of the BOJ's buying is filtering through," said a
trader at a Japanese bank.
A major resistance is seen at around 143.50, close to its
June 7 peak of 143.52 and a 50 percent retracement of its
April-May fall at 143.55.
Sales in the July 143.50 call have been pretty
strong, said an option trader at a Japanese brokerage firm,
suggesting many investors do not expect the futures to rise
beyond that level at least by the end of this month.