Japanese govt bonds close lower amid talk of early hike in interest rates

Japanese govt bonds close lower amid talk of early hike in interest rates

	Published : Fri, 25 May 2007 08:46 By : Agencies Print this Story

TOKYO (XFN-ASIA) - Japanese government bonds closed lower, after conjecture that interest rates will rise sooner than previously expected made investors cautious, dealers said.

The yield on the benchmark 10-year bond closed at 1.715 pct, up from 1.700 pct at the close yesterday.

The yield on the two-year bond was at 0.915 pct, up from 0.895 pct, and the yield on the lead five-year bond rose to 1.295 pct from 1.270 pct.

The yield on the bellwether 20-year bond rose to 2.135 pct from 2.125 pct and the yield on the 30-year bond increased to 2.345 pct from 2.335 pct.

Bond prices move inversely to yields.

The price of the June futures contract for 10-year bonds fell to 133.43 yen from 133.70 yen yesterday.

Akitsugu Bando, a strategist at Okasan Securities, said: 'Conjecture about a rate hike in July emerged, whereas the market had expected the Bank of Japan to act around September or October.'

He said some market players had interpreted remarks to parliament today by Bank of Japan governor Toshihiko Fukui as signalling that the central bank was becoming increasingly aggressive about raising interest rates.

Referring to the recent depreciation of the yen, Fukui said foreign exchange policy was based on the notion that exchange rates should reflect economic fundamentals, and that the central bank would closely monitor the effect of its monetary policy on currency rates and real estate prices.

Bando said investors were now focussing especially on a speech and a press conference next Thursday by a member of the Bank of Japan's policy board, Kiyohiko Nishimura, which will follow the release on Wednesday of the industrial output data.

Today, the government said the core consumer price index, which excludes volatile prices of fresh food but includes energy prices, had been 0.1 pct lower last month than a year earlier, falling for the third straight month -- just as the market had expected.

(1 usd = 121.35 yen)

yumiko.nishitani@xfn.com