JGB yields fall as BOJ rate hike bets recede

TOKYO, Dec 12 (Reuters) - Japanese government bond yields fell across the curve on Thursday due to receding expectations that the Bank of Japan will raise interest rates at its meeting next week.

The 10-year JGB yield fell 1 basis point (bp) to 1.055%. The five-year yield dropped 0.5 bp to 0.725%.

The two-year yield, the most sensitive to the BOJ's policy rate, retreated 0.5 bp to 0.58%.

"The market is now seeing it is less likely that the BOJ would raise rates at its policy meeting next week following a series of media reports about it," said Keisuke Tsuruta, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The BOJ is leaning toward keeping interest rates steady as policymakers prefer to spend more time scrutinising overseas risks and clues on next year's wage outlook, Reuters reported on Thursday.

That followed a Bloomberg news report on Wednesday that said the BOJ sees "little cost" in waiting to hike rates.

The BOJ will hold its final policy meeting for the year on Dec. 18-19, when the nine-member board will deliberate whether to raise short-term rates from the current 0.25%.

Swap rates indicated a 25.3% chance for a 25-bps increase next week and a 69% chance of that move in January.

The 20-year JGB yield fell 1 bp to 1.850%.

The 30-year JGB yield fell 1.5 bps to 2.240%.

The 40-year JGB yield fell 1.5 bps to 2.595%. (Reporting by Junko Fujita; Editing by Savio D'Souza)