JGBs post modest gain, tracking a rebound in U.S. Treasuries
* JGB 10, 20, 30-yr yields dip 1 basis point
* Ten-year futures up in relatively light trade
TOKYO, July 9 (Reuters) - Japanese government bond prices gained modestly on Tuesday, recouping some of the previous day's decline, helped by a rebound in U.S. Treasuries following a sharp sell-off on the back of strong U.S. jobs data last week.
The 10-year yield dipped 1 basis point to 0.870 percent. The benchmark yield rose 2.5 basis points on Monday as it tracked a 23.3-basis point jump in the 10-year Treasury yield on concerns that upbeat jobs data would increase the likelihood of the Federal Reserve starting to scale back its stimulus in the coming months.
Gains in JGB yields were limited on Monday, however, with the Bank of Japan buying 1 trillion yen ($9.9 billion) of JGBs with residual maturities between one and 10 years to support the market, as part of radical monetary policy to drag the country out of persistent deflation.
"In the near term, I expect the sell-off in U.S. Treasuries will have only limited impact on the JGBs because of the BOJ's massive buying to support the JGB market," said Yuya Yamashita, rates strategist at JPMorgan in Tokyo.
"Most of the market participants expect such price keeping operations if JGB market volatility heightens again," he said.
The BOJ is to begin its two-day policy meeting on Wednesday, and market participants expect the central bank to stand pat after it stunned financial markets on April 4, promising to inject $1.4 trillion into the economy in less than two years.
"They will do nothing in the upcoming monetary policy meeting," Yamashita said. "Equities have been recovering. CPI has been improving as seen in the May reading ... The BOJ Tankan survey shows that the sentiment among corporates has been improving."
HSBC raised its growth forecast for Japan to 1.6 percent from 1.2 percent for 2013 and to 0.9 percent from 0.5 percent for 2014.
"The government faces some tough choices in H2 2013 that could alter the short-term growth trajectory. The most important is the final VAT (sales tax) hike decision, expected this October," it wrote in a report.
"We still assume that the tax hike will be enacted as planned, but Prime Minister (Shinzo) Abe has continued to sound cautious on the issue, raising risks that the tax hike will be postponed, especially if the Q2 2013 GDP print is weak."
Ten-year JGB futures added 0.16 point to 142.38 on Tuesday, with 18,775 contracts changing hands, sharply below this year's daily average of 33,314 contracts.
The 20- and 30-year yields each put on 1 basis point, to 1.745 and 1.870 percent, respectively.
The five-year yield eased 0.5 basis point to 0.320 percent.