Japanese government bonds fall as BOJ meeting, inflation risks loom

By Rocky Swift

TOKYO, April 24 (Reuters) - Japanese government bonds (JGBs) slid on Friday as markets positioned for a central bank meeting next week, where policymakers are expected to evaluate inflation risks to the economy.

The benchmark 10-year JGB yield rose 1.5 basis points (bps) to 2.435%, the highest since April 14. The two-year yield, the one most sensitive to Bank of Japan policy rates, increased 0.5 bp to 1.355%. Yields move inversely to bond prices.

The BOJ is expected to keep its key rate steady at 0.75% at the end of its two-day meeting on Tuesday while signalling its willingness to hike as ?soon as June to rein in imported energy price pressures from the Middle East crisis.

Data on Friday showed that Japan's core inflation slowed below the central bank's 2% target for a second straight month in March, as government fuel subsidies counteracted price pressures from the energy shock.

"Today's Japanese bond market is expected to see a slightly bearish trend. Inflation concerns driven by high oil prices are weighing on the market," Takayuki Miyajima, a senior economist at Sony Financial Group, said in a note.

"Since April, ultra-long-term bonds have been relatively firm amid concerns over inflation and fiscal expansion, but this also means the market is now ripe for profit-taking."

The 30-year yield added 3 bps to 3.645%. The yield on the 40-year JGB, Japan's longest tenor, rose 3.5 bps to 3.86%.

The five-year yield rose 1 bp to 1.845%. (Reporting by Rocky Swift in Tokyo; Editing by Subhranshu Sahu)