Japan's 10-year bond yield rises ahead of BOJ policy decision

TOKYO, Oct 31 (Reuters) - Japan's 10-year government bond (JGB) yield rose in early trade on Thursday as investors awaited the Bank of Japan's (BOJ) policy decision on interest rates later in the day.

The 10-year JGB yield rose 1 basis point (bp) to 0.96%.

While the policy will most likely remain unchanged, the market is now cautious that the BOJ may amend the wording of its reference to future policy, said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

"BOJ officials have said the central bank is in no rush to raise rates, but BOJ Governor (Kazuo) Ueda may take out those words today in his statement, which weighs on bond prices," Inadome said.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. But central bank officials have since signalled a cautious and slow approach to shifting policy.

It is expected to hold short-term interest rates steady on Thursday and political uncertainty may force it to stay pat for the rest of 2024, some analysts say.

"Depending on how a new coalition will be formed, the BOJ wants to secure an opportunity to raise rates as early as December by removing the 'no rush' from the statement," said Inadome.

The Japanese ruling coalition's failure to retain a majority in Sunday's lower house elections may force the Liberal Democratic Party to court smaller opposition parties such as the Democratic Party for the People (DPP) in order to stay in power.

Yuichiro Tamaki, head of the DPP, has said the BOJ should avoid changing its ultra-loose monetary policy for now.

The 30-year bond yield fell 1 bp to 2.21%. Other maturities were untraded as of 0112 GMT.

The yield curve has been shifting along with expectations for the pace of policy tightening. The spread between 2-year and 30-year JGBs went from 150 basis points in January to 192 in July. It is currently at 176.

In interviews and news conferences over the past two weeks, Japan's major life insurers have outlined investment strategy updates for the fiscal year ending in March 2025. A majority of them expect to continue purchasing JGBs into the second half of the fiscal year. (Reporting by Junko Fujita; Editing by Nicholas Yong)