JGB yields dip as inflation fears ease ahead of BOJ decision

By Junko Fujita

TOKYO, March 18 (Reuters) - Japanese government bond (JGB) yields dropped on Wednesday after concerns over inflation receded following a pause in oil price rally, although the decline was limited as investors awaited the Bank of Japan's upcoming policy decision.

The 10-year JGB yield fell 3 basis points (bps) to 2.235%. The two-year yield slipped 1.5 bps to 1.255%, and the five-year yield fell 2 bps to 1.660%.

Yields move inversely to bond prices.

Oil prices eased after the Iraqi government and Kurdish authorities reached a deal to resume oil exports via Turkey's Ceyhan port, providing modest relief to concerns about Middle East supplies.

JGB yields had been trending higher recently, as the Middle East conflict pushed oil prices up and added pressure on global central banks to address inflation fears.

The Bank of Japan is widely expected to keep interest rates steady on Thursday after its two-day policy meeting, but may signal its intention to maintain a rate-hike bias, given that the weak yen and elevated oil prices from the Iran war continue to heighten inflationary pressures for the import-dependent economy.

The market view has been divided on whether the central bank will hurry in raising rates to cope with inflation or delay the policy shift to sustain growth. Investor focus will be on BOJ Governor Kazuo Ueda's comments after the policy meeting.

"Ueda will intentionally be vague about its monetary policy," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

"He will not be excessively hawkish or dovish in his post-meeting remarks."

The 20-year JGB yield fell 3 bps to 3.100%. The 30-year yield slipped 3.5 bps to 3.515%.

The yield on the 40-year JGB fell 3.5 bps to 3.74%.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips)