JGB yields fall as traders bet Takaichi election win to limit fiscal risks

By Kevin Buckland

TOKYO, Feb 6 (Reuters) - Japanese government bond (JGB) yields fell on Friday, led by the longest-dated debt, with investors optimistic that a likely landslide win for the coalition government in Sunday's snap election will temper any expansion of fiscal ?stimulus.

Yields were also under pressure from a sharp decline in U.S. Treasury yields overnight ?as economic data pointed to a weaker-than-expected jobs market.

The 30-year JGB ?yield dropped 6 basis points (bps) to 3.505%, the ?lowest since January ?16, which was right before Prime Minister Sanae Takaichi called the snap election and pledged ?a two-year waiver on food tax.

In ?the aftermath of that, the yield spiked to an all-time peak at 3.88%. Bond yields rise when prices ?fall.

Now though, investors are focused ?on how ?a victory for Takaichi's Liberal Democratic Party (LDP) and partner Ishin would obviate the need to negotiate with opposition parties promising even deeper ?tax cuts and broader fiscal spending.

One of Takaichi's aides, Toshihiro Nagahama, said on Thursday that Japan must avoid ramping up fiscal spending in a way that fuels inflation and forces the central bank to raise interest rates rapidly.

The LDP-led coalition could capture as ?many ?as 300 seats in the 465-seat lower house, a poll this week showed.

"The expected victory of the ruling party ?is considered a positive factor in the JGB market," Ataru Okumura, a senior rates strategist at SMBC Nikko Securities, said in a client note.

At the same time, "given that mild fiscal policy is the consensus in the JGB market, caution is warranted regarding market vulnerability to unexpected fiscal expansion movements," he said.

The 10-year ?JGB yield slid 2 bps to 2.205% on Friday, while the 20-year yield lost 3 bps to 3.105%.

The five-year yield dropped 1.5 bps to 1.665%. The two-year yield fell ?1 bp to 1.265%.

(Reporting by Kevin Buckland; Editing by Subhranshu Sahu)