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JGBs end higher, erase post-Moody's losses

TOKYO: JGB futures: ended Tokyo trade higher on Friday, erasing losses from day before as market reassessed Moody's decision to put ratings of Japan's yen-denominated government debt on review for possible downgrade. Ten-year 220th JGB lagged behind, however, yielding 1.825 percent, down from 1.850 percent late on Thursday but above closing level on Wednesday near 1.795 percent. JGBs were supported by optimism about outcome of 10-year and five-year JGB auctions due next week. Some cited speculation that LTCB may invest in JGBs its proceeds from planned sale of stock portfolio worth about 2.3 trillion yen to Deposit Insurance Corp Vincent Truglia, managing director of Moody's for sovereign risk, said he expected Japan review would take several months. Truglia said it would be pure speculation to presuppose outcome of Moody's decision. Japan premium, or extra cost Japanese banks pay when raising funds in overseas interbank markets, re-emerged in response to renewed worries over quality of bank assets. March 10-year JGB futures: ended at 132.62, up 0.57 from Thursday close of 132.05 and even above Wednesday close of 132.59, one day before Moody's ratings review was announced. Yield on 220th 10-year JGB stood at 1.825 percent against 1.850 percent late on Thursday.The Ministry of Finance will hold an 10-year JGB auction next Tuesday. Traders said the coupon is likely to be set at 1.8 or 1.9 percent.

The March contract rose to a high of 132.20 after Finance Minister Kiichi Miyazawa said he does not want to compile a large-scale economic stimulus package this autumn, adding that he expects Japan's economy to recover later this year.

Miyazawa also said the government may be able to reduce the fresh issuance of bonds in fiscal 2001/02 if Japan's economy achieves a self-sustaining recovery later this year.

But the gains were short-lived as the market remained sceptical about the chance of Japan's shifting to a tighter fiscal policy so soon.

"The market doubts that the economy will become strong enough for the government to end fiscal stimulus. Today's comments by (Economic Planning Minister Taichi) Sakaiya seem to support such scepticism," said a trader at a Japanese brokerage.

Sakaiya said on Friday that Japan's economic growth might not hit the government's target of 0.6 percent for the current fiscal year to March 31.

Some traders said JGBs could face downward pressure if the yen continued to weaken.

The dollar rose to a fresh five-month high of 110.97 yen in Tokyo on Friday, amid concerns that Japan's economic recovery may be faltering.

Elsewhere, key September TIBOR-based euroyen futures stood at 99.720 on TIFFE, unchanged from on Thursday's settlement.-Reuters