JGBs edge up on Treasuries, futures hit 2-mth high

(Reuters) - "Markets had calmed a bit after the recent sell-off in U.S.
stocks and the credit market due to subprime worries, but those
concerns have resurfaced after yesterday's news," said Takafumi
Yamawaki, fixed income strategist at Morgan Stanley in Tokyo.




But he added that investors were hesitant to push prices much
higher given the possibility the Bank of Japan may raise rates by
25 basis points to 0.75 percent later in the month or in
September.


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Yen May Rise to 116 as Abe Clings On as Prime Minister, Deutsche Bank Says

(Bloomberg) -- The yen may rise to a four-month high
of 116 per dollar as Japanese Prime Minister Shinzo Abe will
remain in office after his ruling coalition lost its majority in
upper house elections, according to Deutsche Securities.

Abe's decision to retain his post lessens political
instability that may have forced the Bank of Japan to delay an
interest-rate increase next month. The government is likely to
avoid raising sales taxes and close the income gap to appease
opposition parties, supporting consumer spending and the currency.


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JGB futures hit 6-week high, boosted by Treasuries

(Reuters) - Treasuries rallied on Friday after investors became
increasingly nervous that subprime mortgage losses would spread
to other markets and eventually shave economic growth.




Still, expectations remained that the Bank of Japan will
raise interest rates to a 12-year high of 0.75 percent from the
current 0.5 percent, and this was likely to limit further gains
in JGBs.


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Tokyo's Mom and Pop Investors Sell More Yen Than Chicago Futures Traders

(Bloomberg) -- Yen sales by Japanese mom-and-pop
investors this week exceeded professional traders' bets against
the currency on the Chicago Mercantile Exchange.

Japanese margin traders' net yen short positions, wagers it
will decline against the dollar, reached $1.1 billion on July 4,
according to data from the Tokyo International Financial Futures
Exchange. The Bank of Japan assessed the TIFFE has a share of 5.8
percent of overall foreign-exchange margin transactions as of
December 2006, making total net short yen positions for all
Japanese retail speculators about $19.15 billion.


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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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Stocks race up, dollar weakens on rate outlook

(Reuters) - Japanese government bonds tracked a rise in U.S. Treasuries, although gains were limited as investors waited on an auction of 10-year notes and eyed a likely Bank of Japan interest rate hike as early as August.




Tokyo's Nikkei average rose 0.3 percent by the midsession, although traders said volumes were low. MSCI's broadest index of shares elsewhere in Asia hit an all-time high earlier and by 0214 GMT was up 1 percent.


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JGB futures hit 3-wk high as tankan meets forecast

(Reuters) - "The headline figures are as expected, but there are a few
worrying points, such as current as well as future weakness in
smaller firms, and a drop in the sentiment index for the raw
materials sector," said Mari Iwashita, a fixed-income strategist
at Daiwa Securities SMBC.




The quarterly tankan survey also showed companies were still
refraining from raising prices despite rising costs, while a flat
business outlook for big companies suggested their activities are
on a plateau now, Iwashita said.
"The survey does not, however, affect the general scenario of
the economy or expectations for a Bank of Japan rate hike," she
said.


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Yen Falls, Heading for Biggest Quarterly Loss Since 2001 Versus the Dollar

(Bloomberg) -- The yen headed for its biggest
quarterly loss against the dollar since 2001 as a drop in
consumer prices reinforced speculation the Bank of Japan will
keep interest rates on hold.

Japan's currency has declined 4.3 percent this quarter
versus the dollar as investors borrowed yen to buy higher-
yielding assets in carry trades. A report showed today Japanese
consumer prices fell 0.1 percent last month. The central bank has
kept its key rate at 0.5 percent, the lowest amongst major
economies, since February.


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Yen May Extend Gains With Data Forecast to Show Sales Rose During May

(Bloomberg) -- The yen may extend gains from a
record low versus the euro as a report today is forecast to show
Japanese retail sales accelerated last month, fueling speculation
the Bank of Japan might boost borrowing costs.

Japan's currency may gain for a second day versus the dollar
for the first time in more than two weeks on speculation
investors will pare the so-called carry trades, in which they buy
higher-yielding assets overseas funded by loans in the yen. A
report tomorrow might show Japanese industrial production rose
last month after falling in April.


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Australia Dollar Set For a Weekly Gain Against Japan's Yen on Carry Trade

(Bloomberg) -- The Australian dollar rose to its
highest in almost 16 years against the yen and is headed for a
weekly gain as investors are lured to the nation's higher
yielding assets.

So-called carry trades have lifted Australia's currency,
known as the Aussie, 23 percent against the yen the past year,
with investors attracted to a benchmark rate 5.75 percentage
points higher than Japan's, the lowest of major economies. The
Bank of Japan left borrowing costs unchanged last week and said
in its May minutes any increases would be ``gradual,'' spurring
bets the key rate won't be boosted this year.


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Yen Drops to Near Record Against Euro as BOJ Signals Rates to Stay Low

(Bloomberg) -- The yen fell to near a record low
against the euro and declined versus the dollar after minutes
from the Bank of Japan's meeting in May said central bankers
stuck to a policy of raising interest rates ``gradually.''

The Japanese yen has weakened more than any other currency
against the euro and dollar this year as fund managers increased
investments using borrowed yen in the so-called carry trade. The
extra yield investors earn on German 10-year bonds over similar
maturity Japanese debt widened to near a three-year high.


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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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Japanese Government Bonds Advance; Yields Near One-Year High Lure Buyers

(Bloomberg) -- Japanese bonds gained after 10-year
yields near the highest in almost a year attracted some investors.

Bonds in Japan rose for a third day after a rally in
Treasuries on June 15 lowered U.S. 10-year yields from near their
highest in five years. U.S. bonds had gained after a report showed
inflation slowed. Bank of Japan Governor Toshihiko Fukui said last
week that he wants to be more convinced that Japan's economic
growth is sustainable before proposing an interest-rate increase.


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Japanese Two-Year Yields Climb Above 1 Percent for First Time Since 1997

(Bloomberg) -- Japan's two-year government notes
declined, sending yields above 1 percent for the first time in a
decade, on speculation faster global economic growth will prompt
the Bank of Japan to increase borrowing costs this year.

Debt in Japan tracked a drop in Treasuries that yesterday
boosted two-year yields to levels unseen since August, after an
index of U.S. service industries rose to the highest in more than
a year. Japan's two-year notes dropped and 20-year bonds gained
after Bank of Japan Governor Toshihiko Fukui yesterday said the
bank will ``take necessary action in a timely way.''


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Japanese Five-Year Yields Near Highest Since July on Outlook for Exports

(Bloomberg) -- Japan's five-year note yields held near
the highest since July after a report showed U.S. service
industries grew at the fastest pace in more than a year, adding to
optimism exports will help sustain Japan's economic expansion.

Debt in Japan followed a slump in Treasuries that yesterday
pushed two-year U.S. yields to the highest since August. Japan's
two-year yields climbed above 1 percent today for the first time
in a decade on speculation signs of faster global growth will
prompt the Bank of Japan to increase borrowing costs.


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JGBs inch up on Treasuries, futures off 9-month low

(Reuters) - JGBs had been sold off heavily over the past two weeks in
line with a steady rise in yields on euro zone government bonds
and Treasuries, and as solid Japanese jobs and production data
reinforced the view that the Bank of Japan may hike rates as
early as August.




The benchmark 10-year yield scaled the key 1.8 percent mark
on Monday, a seven-month high, while the five-year yield touched
a 10-month high of 1.4 percent.


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JGBs recover on Treasuries, futures off 9-month low

(Reuters) - JGBs had been sold off heavily over the past two weeks in
moves prompted by a steady rise in yields on euro zone government
bonds and Treasuries, and as solid Japanese jobs and production
data reinforced views that a Bank of Japan rate hike is likely as
early as August.




The benchmark 10-year yield scaled the key 1.8 percent mark
on Monday, a seven-month high, while the five-year yield touched
a 10-month high of 1.4 percent.


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Yen May Fall to Record Versus Euro as Japanese Prices Forecast to Decline

(Bloomberg) -- The yen may fall to a record against
the euro for a second day as a Japanese government report is
forecast to show core consumer prices declined in April from a
year earlier.

A survey may show that business confidence in Germany is the
highest since 1991. The Bank of Japan's 0.5 percent interest
rate, the lowest among major economies, has encouraged investors
to borrow yen to purchase higher-yielding assets overseas in so-
called carry trades.


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Japan's Two-Year Note Yields Will Rise to Highest Since 1997, Mizuho Says

(Bloomberg) -- Japan's two-year government notes
will slide, pushing yields to the highest since 1997, as rising
energy prices prompt the central bank to raise interest rates,
according to Mizuho Securities Co.

Consumer prices will show gains for the next two months
buoyed by costlier oil, prompting the Bank of Japan to increase
borrowing costs again as soon as July, said Koji Ochiai, a
senior market analyst at Mizuho in Tokyo. Two-year yields may
exceed 1 percent, the most since June 1997, in the next three
months, he said.


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