JGB futures slip, positions trimmed as Nikkei rises

TOKYO (Reuters) - Japanese government bond futures slipped on Monday as participants trimmed their positions on a rise in Tokyo shares and ahead of an upcoming 30-year debt auction.

Midterm JGBs held relatively firm, as bargain hunting from banks flush with cash prevented yields from rising sharply.

Japan's Ministry of Finance will sell 600 billion yen ($6.4 billion) of 30-year JGBs on Tuesday, and participants expect strong underlying demand from insurers to help the market digest the supply.

The auction is taking place after the 30-year yield recently declined to a four-month low on demand at the start of the fiscal year that began on April 1 from domestic investors such as pension funds and life insurers.

"Concern about the auction is limited as actual investor demand has driven superlong yields down to these levels so far," said Makoto Yamashita, chief Japan interest rate strategist at Deutsche Securities.

"But a superlong rally we have seen this fiscal year may begin tapering off as the market will need time to digest the 30-year bonds."

The 30-year yield edged up 0.5 basis point to 2.220 percent after hitting a four-month low of 2.200 percent on Friday.

The benchmark 10-year yield climbed 1.5 basis points to 1.395 percent.

The five-year yield rose 0.5 basis point to 0.545 percent. The yield has declined more than 30 basis points over the past year, helped in part by purchases from domestic banks looking for a place to park their cash amid rising deposits and slack lending.

Data released on Monday showed outstanding loans held by Japanese banks fell 1.8 percent in March from a year earlier, the most in more than four years, as companies remained reluctant to borrow in order to boost capital spending.

The minutes of the Bank of Japan's March 16-17 policy meeting showed that some policy board members said additional monetary easing would be inappropriate as the economy is picking up in line with forecasts. At the meeting, the BOJ eased monetary policy by doubling the size of its cheap fund-supply adopted in December.

The minutes, released on Monday, were in focus as the BOJ had reached its easing decision in March after a split vote which had dented prospects for further monetary policy loosening.

The BOJ did not engage in further easing at its latest policy meeting the previous week, while it tweaked its assessment to say the economy "continued" to pick up. The benchmark 10-year JGB yield hit a five-month high after upbeat comments on the economy from Governor Masaaki Shirakawa cooled expectations of easing in coming months.

June 10-year futures fell 0.19 point to 138.21.

Tokyo's NIKKEI (NIKKEI225.)stock average <.N225> gained 1 percent after the Dow surpassed 11,000 for the first time in a year-and-a-half on Friday on the latest data reinforcing bets on an improving economy.

(Reporting by Shinichi Saoshiro; Editing by Joseph Radford)

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