JGB market sentiment slightly deteriorates - Reuters survey

TOKYO, Jan 21 (Reuters) - A weekly gauge of sentiment in the Japanese government bond market slightly deteriorated in the latest week amid a weakening yen, but remained supported by expectations of more easing steps by the Bank of Japan, the latest Reuters poll showed on Monday.

The poll's JGB bull-bear diffusion index, calculated by subtracting the number of bearish market players from those who are bullish, came in at minus 29, slipping from minus 23 in the previous survey. That was still far above the reading of minus 54 in the poll before that, which was its lowest reading since the week of July 2.

The median forecast for the benchmark 10-year JGB yield at the end of this week came in at 0.770 percent, below last week's forecast of 0.820 percent and 2 basis points above Friday's closing level of 0.750 percent.

The 10-year note was untraded so far on Monday morning, with activity likely to be thin as the BoJ began its two-day policy meeting and as investors awaited the outcome on Tuesday. The benchmark 10-year JGB futures contract was up 0.11 point at 144.36.

Sources told Reuters that Japan's government and the BoJ have agreed to set 2 percent inflation as a new target, and the central bank will also consider making an open-ended commitment to buy assets until the target is in sight.

The central bank will also discuss scrapping the interest it pays on banks' reserves, according to the sources, a move that would push money market rates to zero.

Positioning for such a move has pushed down yields of shorter maturities, with the 2-year JGB yield losing half a basis point to 0.070 percent on Friday, its lowest since July 2005.

Early on Monday, the dollar touched a fresh 2-1/2-year high of 90.25 yen.

The survey found that 47.1 percent expect JGB yields to rise, up from 40.0 percent in last week's survey.

Those expecting yields to move sideways fell to 35.3 percent from 42.9 percent, while 17.6 percent of respondents expected yields to fall, up slightly from 17.1 percent in the previous survey.

The online survey of 97 JGB market participants from major institutions received 34 responses, for a response rate of 35.1 percent. These included 17 "real money" investors from institutions such as banks, pension and investment funds and insurance companies.

The latest survey was conducted from Friday to 8:00 a.m. on Monday (2300 GMT on Sunday).

(Reporting by Yoshiyasu Shida; Writing by Lisa Twaronite; Editing by Shri Navaratnam)