JGB futures hit six-week high as stocks dip

(Reuters) - Activity was subdued as many market players kept to the
sidelines on lingering worries over problems in the subprime
mortgage sector spilling over into the broader economy. On Friday
U.S. benchmark 10-year yields fell to their lowest level since
early June.




Investors also awaited the outcome of the upper house
election on July 29, as well as remarks by BOJ Governor Toshihiko
Fukui, who will speak on short-term money markets at 0730 GMT.


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JGBs fall, hit by weak Treasuries, 10-year sale

(Reuters) - Traders said they were looking at the U.S. bond market for
direction as JGB prices were expected to move in narrow ranges
ahead of next week's policy meeting by the Bank of Japan, having
digested key data, the auction and speeches by BOJ officials.




"Sluggish demand for the new 10-year issue has weighed on
sentiment, at least in that sector, as the paper is seen as
expensive relative to other maturities," said Kenro Kawano, a
fixed income strategist at Credit Suisse.
The 10-year JGB sale on Tuesday drew lower-than-expected
demand from dealers despite a 1.9 percent coupon, which was the
highest since August, because dealers had wanted a re-opening of
the No. 286 1.8 percent issue to ease their shortage in the repo
market.


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JGB futures eke out gains despite weak auction

(Reuters) - With a raft of events including the auction, the Bank of
Japan's tankan survey of business sentiment and consumer price
data out of the way, investors are sticking to the sidelines
ahead of the central bank's policy meeting next week.




Traders said while investors may feel comfortable holding
bonds at current yield levels, which have factored in a BOJ rate
hike as early as August, expectations of rising interest rates
will keep them from chasing yields lower.


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UPDATE 1-Japan May industrial output unexpectedly falls

(Reuters) - Market players are looking ahead to consumer price data due
out on Friday and the BOJ's quarterly tankan survey next Monday
for clues on whether the central bank will raise rates in August
as markets widely expect.




Industrial output fell 0.4 percent in May from April,
government data showed on Thursday, much weaker than a median
market forecast for a 0.8 percent rise and marking the third
straight month of decline.


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Japan small firms' sentiment down in June -survey

(Reuters) - Traders will await the BOJ tankan as well as industrial
output and core inflation data due later this week for clues to
the timing of the central bank's next interest rate hike, which
is expected to come in the July-September quarter, most likely in
August.




Shoko Chukin's survey produced a reading of 48.4 in the
diffusion index measuring business sentiment, down 0.9 point
from the previous month and below the key threshold of 50 for the
third straight month. The DI is forecast at 49.7 in July.


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JGBs fall as overseas bond prices drop, auction eyed

(Reuters) - Expectations that the BOJ will boost interest rates to a
12-year high of 0.75 percent from the current 0.50 percent in the
July-September quarter have weighed on JGBs, with September
futures striking a seven-year low last week.




The market now sees the BOJ as most likely to lift rates in
August.


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Yen Is Little Changed as Muto Says Bank of Japan to Raise Rates Gradually

(Bloomberg) -- The yen was little changed after Bank
of Japan Deputy Governor Toshiro Muto signaled the central bank
will raise interest rates as wages and prices gradually increase.

Japan's currency traded near an all-time low against the
euro and a 4 1/2-year low versus the dollar as investors borrow
yen at the lowest rates in the industrialized world to fund
purchases of higher-yielding assets, known as carry trades.
Minutes released today from BOJ meetings in April and May showed
policy makers agreed that rates can be raised gradually.


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UPDATE 1-Japan big manufacturers' sentiment worsens in Q2

(Reuters) - The data suggested that the Bank of Japan's closely watched
tankan quarterly survey, due out on July 2, may show a slight
deterioration in corporate sentiment, economists said.




"Overall, the figures are not that good. The headline figures
suggest that the upcoming BOJ tankan's diffusion index for
big manufacturers may show a flat or slightly worse reading than
in the previous survey," said Yoshiki Shinke, senior economist at
Dai-ichi Life Research Institute.


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Euroyen futures rally on Fukui's cautious remarks

(Reuters) - Lead December euroyen futures jumped as much 5 basis
points to 99.000, poised for the largest one-day gain in nine
months, before slipping back to 98.990.




Swap contracts on the overnight call rate cut
the chance of a July rate hike to 27 percent from 35 percent
earlier in the day, while the chance of a move in August dipped
to 84 percent from 89 percent. A hike by the September meeting is
fully priced in.


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JGBs dip on BOJ rate worries, 5-year auction eyed

(Reuters) - JGBs had been sold heavily since late May on a rapid rise in
overseas yields triggered by expectations for solid global growth
and tighter monetary policies to ward off price pressures,
compounding concerns of a BOJ rate hike as soon as August.




The market's focus on Tuesday is the Ministry of Finance's
auction of 2 trillion yen in five-year notes.


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JGB futures tumble to 10-mth low on BOJ rate worry

(Reuters) - JGB gains in early trade were met with a wave of selling by
speculative accounts as well as dealers who rushed to dump long
positions as market players have been rattled by the possibility
of a BOJ rate rise as soon as August.




A rebound in the Nikkei share average into positive
territory after early losses also soured sentiment and gave
investors more reason to sell JGBs, driving two-year yields up
further to a decade-high 1.030 percent.


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JGB 2-year yield scales decade-high on rate worries

(Reuters) - A steady rise in U.S. and euro zone government bond yields
helped fuel concerns the BOJ could raise rates to a 12-year high
of 0.75 percent as soon as August from the current 0.50 percent.




Ten-year JGB futures recovered from a 10-month low hit
earlier in the session as dealers covered short positions,
thinking that the sell-off over the past two weeks may have been
overdone, but gains were limited due to persistent rate worries.


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JGB futures hit month low as overseas yields rise

(Reuters) - The European Central Bank and the Bank of England are
expected to boost interest rates further, while speculation has
receded that the Federal Reserve will cut interest rates later in
the year.




Since the BOJ ended its extraordinary, super-loose monetary
policy in March 2006, it has raised interest rates twice to a
decade-high 0.5 percent , and many market players expect a third
rate hike in the July-September quarter.


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