Japan bond yields hit multi-year highs on BOJ, stimulus concerns

(Recasts headline, paragraphs 1-2 with yield levels)

By Junko Fujita

TOKYO, Dec 3 (Reuters) - Japanese bonds slid further on Wednesday, sending yields to multi-year peaks, as prospects of central bank tightening and big government spending plans weighed on investor sentiment.

The five-year Japanese government bond (JGB) yield rose 2 basis points (bps) to 1.385%, the highest since June 2008. The two-year yield, the most sensitive to the Bank of Japan's policy rate, rose 1 bp to 1.015%, close to a 17-year peak.

Yields on 30-year debt jumped to a record before a sale of the securities on Thursday.

BOJ Governor Kazuo Ueda on Monday gave the clearest hint so far of an impending rate hike, saying the central bank would consider the "pros and cons" of raising its policy rate at its December 18-19 meeting. His comments helped spur the heaviest one-day selloff in JGBs since July.

Market players are taking for granted the BOJ will raise its rate by a quarter percentage point to 0.75% this month, and they are now focused on the rate path after that, said Naoya Hasegawa, chief bond strategist at Okasan Securities.

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

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

Super-long-dated bonds remain under pressure from a massive spending plan announced by Prime Minister Sanae Takaichi to be funded by new debt issuance.

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

Some strategists said the auction might get firm demand with yields at unprecedented highs. Demand may be also supported by hopes that the finance ministry may trim the sale of the bonds in the next fiscal year.

The benchmark 10-year JGB yield rose 3.5 bps to 1.89%, the highest since June 2008.

The 20-year JGB yield rose 3.5 bps to 2.910%. The 40-year yield surged 5.5 bps to 3.740%. (Reporting by Junko Fujita and Rocky Swift; Editing by Ronojoy Mazumdar and Subhranshu Sahu)