TOKYO Feb 7 Japanese government bond yields dipped on Thursday, led by short-term notes, as investors bet the Bank of Japan will cut interest rates to zero by scrapping interest payments on banks' excess reserves under a new governor.
* The BOJ's current chief, Masaaki Shirakawa, said on Tuesday he will step down in March, three weeks before his term expires.
* Shirakawa has resisted cutting interest payments to banks, saying pushing interbank lending rates to zero would effectively kill money markets because there would be no incentives for trading.
* But investors believe a new governor, who is expected to be named later this month, will ditch Shirakawa's stance.
* "A new governor, whoever that will be, is supposed to take a different approach to monetary policy, to do something the BOJ hasn't done yet," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.
* The two-year JGB yield fell 1.5 basis point to 0.030 percent, its lowest since Sept 2002. It has dropped 6.5 basis points so far this year, outperforming longer maturities.
* The five-year yield also dipped 0.5 basis point to 0.140 percent, matching a record low touched a few times earlier this year.
* The 10-year yield fell 1.0 basis point to 0.760 percent , extending its drop from a three-week high of 0.805 percent hit on Monday. The 10-year JGB futures price rose 0.13 point to 144.14.
* The 30-year bond yield dipped 0.5 basis point to 1.995 percent, still comfortably sitting in its rough 1.95-2.00 percent range in the past month.
* Longest maturities such as 30-year bonds have not benefited from BOJ easing expectations on worries a radical monetary easing could boost inflation in the long run.