JGB futures edge down on stock gains, US data eyed

* Nikkei rises 0.3 pct, sparks bond future selling

* Investor attention shifts to U.S. jobs data on Friday

By Rika Otsuka

TOKYO, March 3 (BestGrowthStock) – Japanese government bond futures
edged down on Wednesday as gains in Tokyo’s Nikkei stock average
prompted traders to dump long positions in government debt.

But losses were limited and mostly technical, with few
willing to sell JGBs in large lots a day after a smooth auction
of benchmark 10-year notes pointed to solid demand.

“There is no factor strong enough to prompt players to chase
futures prices higher above the key 140 level,” said a bond
trader at a European brokerage. “JGBs fell as traders took their
cue from a rise in stocks, the only trading incentive today.”

March 10-year JGB futures were down 0.03 point at 139.78
(2JGBv1: ) after rising as high as 139.94 earlier in the day. The
lead futures contract hit a two-month peak of 140.05 last week.

The yield on the new No.306 10-year bonds was unchanged on
the day at 1.330 percent (JP10YTN=JBTC: ), staying near a two-month
low of 1.290 percent.

The Nikkei average (.N225: ) ended up 0.3 percent, erasing
earlier losses. [.T]

JGBs have been supported by expectations that the Bank of
Japan could further relax monetary policy to support a fragile
recovery in an economy suffering from deflation.

UNDER PRESSURE

The government is increasing pressure on the central bank,
urging it to further ease monetary policy to help the economy.
That is making investors even more comfortable about picking up
JGBs.

Japanese Finance Minister Naoto Kan said on Wednesday that
the government and the BOJ are making efforts to escape from
deflation at an early date. [ID:nTKX006684]

“Everybody thinks the government will keep up strong pressure
on the BOJ and that the central bank will move if share prices
plunge or the yen jumps,” said Makoto Yamashita, chief Japan
interest rate strategist at Deutsche Securities.

A stronger yen could snap Japan’s export-led recovery.

The dollar on Wednesday fell to hit its lowest in more than
two months against the Japanese currency below 88.50 yen (JPY=: ).
[JPY/]

But analysts said the greenback needed to slide to 85 yen to
boost expectations for imminent policy easing by the BOJ.

One reason market participants do not expect near term
central bank moves is that recent data has shown some improvement
in the economy.

Data showed late last week that Japan’s industrial output
rose by a much-better-than-expected 2.5 percent in January as
manufacturers ramped up production to meet demand from Asia.
[ID:nTKG006656]

Market participants speculate the central bank could increase
the amount of JGBs it buys from the market if market conditions
worsen, prompting it to further ease policy.

Investors also believe the BOJ is likely to extend the
duration of its new three-month funding operation to six months
or longer.

The five-year yield matched a one-month low of 0.485 percent
before rising back to 0.495 percent (JP5YTN=JBTC: ), unchanged on
the day.

Activity was subdued as the market’s focal point has shifted
to U.S. monthly employment data due later in the week.

The Ministry of Finance’s 2.2 trillion yen ($24.8 billion)
sale of 10-year bonds drew bids 3.40 times the offer on Tuesday,
above the average of 2.85 at the past 12 sales.

Analysts said investors needed to add JGBs to their
portfolios as they prepare for Japan’s new fiscal year starting
on April 1.

Investing Advice

($1=88.73 Yen)
(Reporting by Rika Otsuka; Editing by Joseph Radford)

JGB futures edge down on stock gains, US data eyed