JGB futures edge up, eyes on ruling party poll

* JGB futures pare losses after marking 11-wk low

* Volume hits 3-wk trough before 20-yr offer, DPJ poll Tues

* Ozawa win may hurt JGBs -Reuters poll

* Kan win may not dispel fiscal spending worries-analysts

By Masayuki Kitano

TOKYO, Sept 13 (BestGrowthStock) – Ten-year Japanese government bond
futures edged higher on Monday after briefly touching an 11-week
low, with investors looking to a ruling party leadership election
for clues on the outlook for fiscal policy.

Worries have mounted that a potential change in leadership in
Japan’s ruling Democratic Party could undermine the government’s
stance on fiscal austerity, stirring investor jitters and adding
fuel to a recent jump in JGB yields.

A Reuters poll showed that a win by Ichiro Ozawa in the
ruling party vote, which will decide who is prime minister, would
likely give a short-term boost to stocks while weakening JGBs and
the yen. [ID:nTOE68C00Z] [ID:nPOLJP]

Ozawa is seen as favouring a more expansionary fiscal policy
than his opponent, Prime Minister Naoto Kan. Media reports have
said Kan has a lead over Ozawa, but with many lawmakers
undecided, the outcome is too close to call. [ID:nPOLJP]

Since investors have had time to prepare for the possibility
of a win by Ozawa, any sell-off in JGBs may turn out to be
limited even if Ozawa wins, said Akitsugu Bandou, senior
economist for Okasan Securities.

On the other hand, if the ruling party re-elects Kan as party
leader, that would not necessarily be bullish for JGBs.

“Even if the stance towards fiscal consolidation is kept,
uncertainty about the next fiscal year’s budget will remain. I
don’t think that will change even if Kan is re-elected,” Bandou
said.

Some traders, however, said JGBs could get a boost if Kan
wins, especially since worries over Ozawa’s stance on fiscal
policy were a catalyst for the recent JGB sell-off and a bearish
steepening of the yield curve.

Lead December 10-year JGB futures edged up 0.05 point to
141.28 (2JGBv1: ), having bounced up from an 11-week low of 141.06
struck earlier on Monday. Trading volume sagged to a three-week
low of 17,666 contracts.

The benchmark 10-year JGB yield dipped 0.5 basis point on the
day to 1.145 percent (JP10YTN=JBTC: ), having slipped back from an
intraday high of 1.165 percent.

JGBs initially edged lower due to a rise in Tokyo share
prices, which finished the day 0.9 percent higher (.N225: ), and in
the wake of a drop in U.S. Treasuries on Friday.

But JGB futures and benchmark 10-year JGBs later trimmed
their losses, with market players citing possible buying-on-dips
by investors.

Market players said investors are likely looking for
opportunities to buy cash bonds on dips after a sell-off in the
past few weeks pushed yields higher.

Some market players said the benchmark 10-year JGBs are
likely to find support if the yield rises near 1.2 percent, which
would be right around a 2-