* Futures fall third biggest under BOJ’s yield curve control
* 10-year yield hit 5-month high
* Short-dated yields rise most as BOJ rate cut hopes quashed
* Selling gains momentum after strong U.S. data
TOKYO, Nov 6 (Reuters) - Japanese government bond prices dived on Wednesday, with the benchmark futures seeing one of biggest falls in recent years, as progress in U.S.-China trade talks and upbeat U.S. data prompted investors to scale back easing expectations by Bank of Japan.
Benchmark 10-year JGB futures fell 0.66 point, the third biggest since the BOJ started to control the 10-year yield in 2016, to 153.23.
Trading volume jumped to 45,779 lots, the biggest in almost two months.
The 10-year JGB yield rose 5 basis points to minus 0.090% after having soared to as high as minus 0.075%, its highest since late May.
“At the root of the plunges are receding expectations of interest rate cuts by the Bank of Japan,” said Naoya Oshikubo, senior manager of research at Sumitomo Mitsui Trust Asset Management.
It was just about a month ago when investors thought the BOJ was almost certain to cut interest rates in October, after Governor Haruhiko Kuroda had dropped clear hints of his intentions to ease monetary policy if needed.
But signs of truce in U.S.-China trade war since mid-October has changed the picture, with optimism on the global economy gaining momentum after a string of strong U.S. economic figures such as Friday’s jobs data and services sector data on Tuesday.
As investors adjust their views on the BOJ’s policy, short-dated notes yield rose more than longer peers, flattening the yield curve.
The two-year JGB yield rose 5 basis points to minus 0.195%, having hit a three-month high of minus 0.190% at one point. That compared with its record low of minus 0.35% set on Sept 25.
The five-year yield rose 6 basis points to minus 0.210%, having climbed as high as minus 0.190%, its highest since May 31.
At the longer end of the market, the 20-year JGB yield rose 3.5 basis points to 0.260% while the 30-year yield rose 3 basis points to 0.400%.
Traders said persistent selling in the futures led the downturn in the market.
This selling, they added, could reflect foreign speculators’ position unwinding or hedge selling from brokers who took sell orders from big Japanese investors but there is no clear consensus yet.
Some market players say there is limit to how far JGBs can fall further, given that the BOJ is seen keeping its ultra-loose policy framework in the foreseeable future, with Japan’s inflation nowhere near the BOJ’s target of 2%. (Reporting by Tokyo Markets Team; editing by Uttaresh.V)