Benchmark Japan bond yields poised for weekly decline as markets await BOJ

By Rocky Swift

TOKYO, Dec 12 (Reuters) - Yields on benchmark Japanese government bonds (JGBs) were poised for their first weekly decline in two months on Friday as markets anticipated an interest rate hike by the central bank next week.

The 10-year JGB yield rose 0.5 basis point (bp) to 1.930% on Friday, but still down from an 18-year high of 1.97% touched on Monday. The yield was set for a 2 bp decline this week, the first five-day fall since October 17.

Shorter-term JGBs, those particularly sensitive to central bank policy, have been on a downward trajectory recently on hints by the Bank of Japan that it was preparing to raise its key policy rate by a quarter percentage point to 0.75% to tame inflation and declines in the yen.

And, longer-dated bonds have also been under pressure, driving yields to historic levels, following Prime Minister Sanae Takaichi's announcement of massive stimulus that will be funded largely by new debt.

"Facing the market constraints of a falling yen and rising interest rates, the Takaichi administration is also reportedly willing to accept a rate hike despite its reflationary policy stance," Yusuke Matsuo, senior market economist at Mizuho Securities, said in a note. "We therefore see almost no remaining obstacles to BOJ consideration of a rate hike."

The central bank is likely to continue increasing its key rate once every six months, consistent with the pace of tightening up until the United States rattled global economies with sweeping tariffs in April, Matsuo said.

The 20-year JGB yield fell 1.5 bps to 2.895%. The two-year yield was flat at 1.05%, and the five-year yield was unchanged at 1.420%. (Reporting by Rocky Swift; Editing by Subhranshu Sahu)