* Life insurers said to buy in superlong sector
* BOJ seen likely to take further easing steps
By Lisa Twaronite
TOKYO, Dec 19 Surging stock prices helped push
benchmark Japanese government bond yields to a nearly 7-week
high, though market participants said some dip-buying emerged to
Japan's Nikkei stock average jumped 2.4 percent to
end above 10,000 for the first time in more than eight months,
as the yen hit a 16-month low against the euro and traded near a
20-month low against the dollar.
Yields on cash 10-year JGBs added 2.5 basis
points to 0.780 percent, their highest level since Nov. 2.
"Equities are up more than 2 percent and we continue to see
yen weakness," Tadashi Matsukawa, head of Japan fixed income at
Pinebridge Investments in Tokyo.
"However, there is a BOJ meeting tomorrow, and
also there is a big JGB redemption coming in tomorrow, so it
seems that there is also very good dip-buying, especially in the
5-6 year sector," he said.
On Wednesday, the Bank of Japan began its regular two-day
policy meeting at which sources said it will decide to take
further easing steps. It will also consider adopting a 2 percent
inflation target no later than in January in response to calls
from the incoming prime minister, Shinzo Abe, for the bank to
make stronger efforts to beat deflation.
JGBs also faced pressure from a drop in U.S. Treasury prices
on signs of progress in resolving the U.S. "fiscal cliff" budget
crisis sapped demand for safe-haven fixed income assets.
Negotiations in Washington to avert the tax hikes and
spending cuts appeared to be moving toward a deal as House of
Representatives Speaker John Boehner kept the support of his
Republican colleagues for compromises in talks with President
"JGBs have moved on domestic factors recently, but they've
also tracked the uptrend in yields on U.S. Treasuries,
particularly as Japanese equities have soared with the 'risk-on'
mood," said a fixed-income fund manager at a Japanese asset
On the data front, Japan's exports fell in November from a
year earlier to mark the sixth straight month of declines,
bolstering the case for the BOJ to muster further monetary
Fourteen of 19 economists polled by Reuters last week said
they expected the BOJ to ease, most likely by increasing its 91
trillion yen ($1 trillion) asset buying and lending programme by
up to 10 trillion yen.
"We will likely see some profit-taking on yen short
positions and equity long positions in the short term, so even
if the BOJ doesn't do anything tomorrow, I think JGBs should be
supported in the short term," said Pinebridge Investment's
Abe's Liberal Democratic Party swept to power in Sunday's
lower house election after he called for massive fiscal spending
to revive the economy and "unlimited" monetary easing to achieve
"As JGB markets have now discounted the election results to
a good extent, we should be aware of any signs that the yield
uptrend may have reached an end at 10-year yields of around 0.75
percent-0.80 percent," said Chotaro Morita, chief fixed income
strategist at Barclays, in a note to clients.
An auction on Tuesday of 20-year government bonds met tepid
demand, as investors shunned the superlong debt on concerns that
Abe's policies will lead to inflation in the long term, which
erodes the appeal of fixed-income assets. But Japanese life
insurers were said to be bargain-hunting on Wednesday, so that
zone fared better than the 10-year sector.
Yields on 20-year bonds rose 1 basis point to
1.745 percent after earlier rising to 1.750 percent, their
highest since early April. Yields on 30-year bonds
added half a basis point to 1.985 percent.
The 10-year JGB futures contract fell for a fifth
consecutive session, losing 0.11 point to 143.88, after falling
as low as 143.70, its lowest since Sept. 20.