JGB yields rise on concerns over further rate hikes after December meeting

By Junko Fujita

TOKYO, Dec 3 (Reuters) - Japanese government bond (JGB) yields rose on Wednesday as investors grew concerend about the Bank of Japan's further rate hikes path after an expected increase in December.

The two-year JGB yield, the most sensitive to the BOJ's policy rate, rose 1 basis point (bp) to 1.015%.

The five-year yield rose 1.5 bps to 1.38%, matching the June 2008 peak hit on Monday.

"The market takes it for granted that the BOJ would raise the policy rate to 0.75% at its policy meeting this month. What they are concerned is the BOJ's rate path after that," said Naoya Hasegawa, chief bond strategist at Okasan Securities.

BOJ Governor Kazuo Ueda gave the clearest hint so far on a rate hike on Monday, saying the central bank would consider the "pros and cons" of raising rates at its December 18-19 meeting.

His comments helped spur the heaviest sell-off in JGBs since July on Monday, while stocks slid and the yen rose on the prospect of higher interest rates.

"The BOJ's message at the policy meeting will be hawkish, indicating a further rise in interest rates, otherwise, the yen would weaken," said Hasegawa.

Ueda said on Monday that real interest rates are deeply negative, and another hike would still leave borrowing costs low.

Ueda also said the BOJ will provide more information on how far the rate is from levels deemed neutral to the economy, once it raises the policy rate to 0.75%.

Caution ahead of the 30-year bond auction in the next session also weighed on sentiment, pushing the 30-year JGB yield up 5 bps to 3.425%, a record high.

Yields on super-long dated bonds remain under pressure on big spending by Prime Minister Sanae Takaichi's administration.

Some strategists say the auction may get firm demand after its yield hit a record high this week. Demand may be also supported by hopes that the finance ministry may trim the sale of the bonds the next fiscal year.

The 20-year JGB yield rose 2 bps to 2.895%.

The 40-year JGB yield rose 3 bps to 3.715%.

(Reporting by Junko Fujita; Editing by Ronojoy Mazumdar)