(Corrects 6th para to clarify the yield hit a fresh low,
corrects 10-year yield and change in bullet points)
* Short-dated bonds up as market looks to post-Shirakawa BOJ
* Shirakawa's announcement of early departure fuels buying
* 5-year yield hits record low of 0.135 pct
* 10-year yield down 1.0 bp at 0.760 pct
By Hideyuki Sano
TOKYO, Feb 7 Japanese government bond yields
slid on Thursday, with the five-year yield hitting an all-time
low, as investors bet the Bank of Japan will adopt a zero
interest rate policy under a new governor.
The current BOJ governor Masaaki Shirakawa has long resisted
cutting interest rates, saying pushing interbank lending rates
to zero would effectively kill money markets because there would
be no incentives for trading.
But Shirakawa's announcement on Tuesday that he will step
down in March, three weeks before his term expires, triggered a
wave of buying in short-term notes as investors look to a
"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.
Japanese Prime Minister Shinzo Abe, who has pressured the
BOJ to take drastic easing steps to achieve inflation of two
percent, is seen naming a new governor and two deputies later
this month, bringing people with dovish credentials
The five-year yield fell 1.0 basis point to 0.135 percent
, an all-time low.
The two-year JGB yield fell 1.5 basis point to 0.030 percent
, its lowest since September 2002. The two-year
yield has dropped 6.5 basis points so far this year,
outperforming longer maturities.
The price of three-month euroyen interest rate futures also
rose to a 7 1/2-year high of 99.80.
Many market players expect the BOJ to scrap the 0.10 percent
interest rate the central bank pays on banks' excess reserves.
That had -- until recently -- discouraged banks from buying
any short-term instruments yielding less than that.
In addition, there are expectations that the BOJ will extend
the duration of bonds it buys under its asset buying scheme to
those with up to five years to maturity from up to three years
"Many players were trying to cover short positions
desperately. But I feel like people are becoming stupefied a
bit... No one is thinking about funding costs now," said a
trader at a Japanese brokerage firm.
The overnight call rate, at which banks lend money to each
other, was at around 0.08 percent on Thursday.
The strength of short-term notes filtered through to the
longer end of the market.
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
0.14 point to 144.15.
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.
Sharp gains in Japanese share prices in the past few months
also made investors reluctant to buy long-dated bonds.
The Nikkei share average hit its highest level in
more than four years on Wednesday before giving up some gains on
Thursday, on hopes of aggressive monetary easing.
(Reporting by Hideyuki Sano; Editing by Sanjeev Miglani)