JGB yields hit 14-year peaks on surging US yields, BOJ hike speculation

By Kevin Buckland

TOKYO, Jan 14 (Reuters) - Japanese government bond yields rose to fresh 14-year highs on Tuesday, lifted by surging U.S. bond yields and speculation of a possible interest rate hike by the Bank of Japan next week.

The 10-year JGB yield advanced 5.5 basis points (bps) to stand at 1.25% as of 0540 GMT, a level last seen in April 2011.

That's after the equivalent U.S. Treasury yields jumped to a 14-month peak of 4.805% overnight, having added more than 12 bps in the two days since Friday's strong U.S. jobs report spurred bets the Federal Reserve may not cut rates this year.

The Japanese markets were closed on Monday for a national holiday.

On Tuesday, BOJ Deputy Governor Ryozo Himino left the door open to additional policy tightening on Jan. 24 by saying in a speech to business leaders that "the board will discuss whether to raise interest rates next week and reach a decision based on the economic and price projections laid out in our quarterly outlook report."

Himino made some "slightly optimistic comments on wage hikes" but didn't give "clear hints" for an imminent tightening, said Shoki Omori, chief Japan desk strategist at Mizuho Securities.

"I would say the board is undecided at this point on whether to hike in January."

Markets currently have priced in a 57% chance of a quarter-point hike at the upcoming meeting.

The two-year JGB had yet to trade on the day.

The five-year yield rose 4.5 bps to 0.865%, the highest since June 2009. An auction of five-year notes went smoothly but had little impact on the market.

The 20-year JGB yield advanced 4.5 bps to 2.01%, a level last seen in May 2011. The 30-year yield added 4 bps to 2.34%.

Benchmark 10-year JGB futures fell 0.48 yen to 140.58. Yields move inversely to bond prices. (Reporting by Kevin Buckland; Editing by Savio D'Souza)