JGBs rally on report Bank of Japan to consider pausing bond-buying taper

By Rocky Swift

TOKYO, June 9 (Reuters) - Japanese government bonds rallied on Tuesday, reversing earlier declines, following a report that the central bank will consider pausing a reduction in its regular debt purchases next year.

Here are a few details:

* The benchmark 10-year JGB yield fell 5 basis points to 2.665%, after earlier reaching 2.74%, the highest since May 22. Yields move inversely to bond prices.

* The Bank of Japan will consider maintaining the current pace of bond purchases beyond next fiscal year, sources said, pausing a tapering process in its quantitative tightening plan.

* JGBs fell earlier in the session as persistent inflation concerns clouded the demand picture ahead of a sale of 30-year bonds on Wednesday.

* "The recent rise in interest rates is driven more by inflation concerns and fears that the Bank of Japan is lagging behind in responding to price pressures than by supply-and-demand factors," Takayuki Miyajima, senior economist at Sony Financial Group, said in a note.

* Japan's Economic Revitalisation Minister Minoru Kiuchi said on Tuesday that he hoped the BOJ would work closely with the government to durably achieve its 2% inflation target. He also said the government would keep scrutinising interest-rate moves and their effects on the economy.

* JGB yields have been under upward pressure as expectations firmed that the central bank will raise its policy rate by 25 bps to 1% at its June 15-16 meeting.

* Interest rate swaps data through Monday showed a 93% probability of a hike, according to research firm Tokyo Tanshi.

* The BOJ has shifted to a more hawkish tone as the Iran war-driven energy shock lifted inflation risks, and Governor Kazuo Ueda has warned that energy shocks can become persistent via wages and expectations.

* Moves in Japanese yields also tracked global bond markets, where U.S. Treasury and euro zone yields have risen in recent sessions amid persistent inflation pressures and expectations for central bank tightening.

* The 20-year JGB yield slid 7 bps to 3.565%, while the 30-year yield sank 6.5 bps to 3.870%. The yield on the 40-year JGB, Japan's longest tenor, rose 0.5 bps to 3.805%.

* The two-year yield, the one most sensitive to BOJ policy rates, decreased 0.5 bps to 1.41%. The five-year yield fell 2 bps to 1.920%.

(Reporting by Rocky Swift; Editing by Sherry Jacob-Phillips and Mrigank Dhaniwala)