JGBs ease ahead of Wednesday's auction of five-year bonds
* Ten-year JGB futures down, volume lowest since Dec 25
* Finance ministry to auction 2.7 trln yen of 5-yr bonds on Wed
TOKYO, July 16 (Reuters) - Japanese government debt prices edged lower on Tuesday, ahead of an auction of five-year bonds in the next session, even though the Bank of Japan offered to buy 560 billion yen of bonds as part of its monetary easing policy to revive the economy.
The 10-year yield was up 1 basis point at 0.825 percent after falling 4 basis points last week. Monday was a public holiday in Japan.
Ten-year JGB futures dipped 0.05 point to 143.11, with 12,278 contracts changing hands, their lowest since Dec. 25.
The Japanese central bank offered to buy 110 billion yen ($1.1 billion) of JGBs with a residual maturity of up to one year and 450 billion yen of debt with a residual maturity of five to 10 years.
According to International Financing Review, a Thomson Reuters publication, a few regional banks sold eight-year JGBs in relatively large lots in the morning ahead of Wednesday's auction of 2.7 trillion yen of five-year bonds, while some players sold 30-year JGBs.
The 30-year yield added 1 basis point to 1.855 percent, while the 20-year yield was also up 1 basis point, at 1.725 percent.
The five-year yield was unchanged at 0.295 percent, after earlier rising to as much as 0.305 percent. It fell 2.5 basis points last week to 0.295 percent, after touching a four-week low of 0.290 percent on Thursday.
"The five-year yield at 30 basis points is not that super-attractive. We should see some concession into the five-year auction tomorrow but after that the yield should stay around this level," said Tomohisa Fujiki, interest rate strategist at BNP Paribas.
Volatility has eased in the JGBs recently after the market was jolted by the BOJ's announcement of a massive bond-buying programme on April 4 to pull the world's third-largest economy out of deflation.
The 30-day implied volatilities on JGB futures fell to a more than two-month low of 2.70 on Friday. The latest data will be available later on Monday. It hit a two-year high of 6.1 on April 12.
Royal Bank of Scotland recommended investors sell on strength, saying JGB yields were likely to move higher as expectations remained that the U.S. Federal Reserve would scale back its stimulus in September or December.
"Pressure favouring a stronger dollar and weaker yen spurred by the widening real yield disparity between Japan and the U.S. is contributing to expectations of an export recovery and a further rise in import prices," it wrote in a note.
"Market conditions are healthy for JGBs at this point because of heavy buying by the BOJ. However, for now we maintain our view that the next shift in yields after a range-bound market will be higher."