JGBs rise, tracking volatile stocks; 10-yr yield hits 1-month low
* 10-yr futures touch highest since Dec. 13
* Superlong bonds underperform but off last week's lows
TOKYO, Jan 17 (Reuters) - Japanese government bonds rose on Thursday as the stock market weakened for most of the session, with the benchmark yield skidding to a one-month low. Rising expectations of Bank of Japan policy easing steps next week also continued to bolster the market. The BOJ will consider taking additional stimulus action, most likely through an increase in its 101-trillion-yen ($1.1 trillion) asset-buying and lending programme, and doubling its inflation target to 2 percent at its two-day meeting ending on Tuesday, sources close to the central bank have said.
But the BOJ is seen holding off on deploying some other new initiatives under consideration, preferring to save them for later as pressure from Prime Minister Shinzo Abe is likely to persist. "There's a possibility the BOJ is going to adopt 2 percent inflation targeting, and given the history of CPI in the last two decades, that would be a very difficult goal to achieve," said Le Ngoc Nhan, a strategist at Morgan Stanley MUFG Securities in Tokyo. "But if they achieved that, it would send a very strong signal to markets, that the BOJ is going to stay on hold a lot longer than current expectations," he said. The 10-year JGB yield slipped 1 basis point to 0.735 percent, after falling to an intraday low of 0.730 percent, its lowest since Dec. 17.
The 10-year JGB futures contract ended up 0.07 point at 144.38, extending its rising streak to five sessions and rising as high as 144.50, its highest since Dec. 13 on relatively heavy volume of 51,932 contracts. Futures trading was volatile, tracking equities markets. The Nikkei stock average staged a dramatic recovery late in the session, ending up 0.1 percent at 10,609.64 points after trading as low as 10,432.97, after a media report quoted Japan's economic minister as saying his remark on the yen early this week was misinterpreted. That pushed up exporters' shares before the closing bell. The superlong sector slumped late in the session, giving back some of this week's gains, though yields stayed off last Friday's highs. The yield on the 20-year bond added half a basis point to 1.735 percent, moving back towards Friday's high of 1.805 percent, its highest since April 2012. The 30-year bond yield rose 1 basis point to 1.970 percent, moving back toward Friday's high of 2.025 percent, its highest since August 2011.