JGB yields fall under BOJ pressure; investors cautious before auction

By Kevin Buckland

TOKYO, Feb 1 (Reuters) - Japanese government bond yields fell on Wednesday, under pressure from relentless purchasing operations by the central bank, while a looming 10-year note auction added to the cautious mood.

The 10-year JGB yield fell 0.5 basis point to 0.485%, retreating from the Bank of Japan's (BOJ's) policy ceiling of 0.5% under its yield curve controls (YCC). Benchmark 10-year JGB futures rose 0.1 yen to 146.66.

The central bank bought a record 23.69 trillion yen ($182 billion) in January through its outright purchase operations, newly released BOJ data showed.

But while the BOJ's aggressive policy is pressuring yields, there is concern among investors that the benchmark yield could hit 0.5% on Thursday, when the Ministry of Finance offers some 2.7 trillion yen in 10-year notes. The previous issue, auctioned in December, carried a coupon rate of 0.5%.

"Since the BOJ continues to purchase current issues at 50 basis points every day, many market participants think that it's just a matter of time for the 10-year yield to touch 50 basis points again," said Naomi Muguruma, a senior market economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

"There are so many technical issues in the JGB market because of YCC, the market has lost clear direction and is more affected by small technical factors unrelated to macro-economic fundamentals."

Yields on longer tenor JGBs, which are less affected by the BOJ's buying, fell much more.

The 20-year yield sank 2.5 basis points to 1.355%, while the 30-year yield declined 2 basis points to 1.575%.

Moves were more muted at the shorter end, with five-year yield edging down 0.5 basis point to 0.180% and the the two-year yield flat at -0.015%. ($1 = 130.2300 yen) (Editing by Rashmi Aich)