JGBs fall ahead of BOJ decision

By Junko Fujita

TOKYO, July 31 (Reuters) - Japanese government bonds fell in early trading on Thursday as investors awaited the central bank's policy statement and accompanying quarterly outlook report to gauge the pace of potential interest rate hikes.

The 10-year JGB yield JP10YTN=JBTC rose 1 basis point (bp) to 1.565%. The five-year yield JP5YTN=JBTC rose 1.5 bps to 1.105%. The most policy-sensitive two-year JGB yield JP2YTN=JBTC rose 1 bp to 0.83%.

Yields move inversely to bond prices.

Bank of Japan Governor Kazuo Ueda and his colleagues are widely expected to hold interest rates steady at the end of a two-day policy meeting later in the day. However, analysts anticipate the BOJ may deliver a less pessimistic economic assessment.

There are expectations that the central bank will raise its inflation outlook, and JGB yields are already pricing in the likelihood of a rate increase within the year, strategists said.

Shorter-dated bond yields jumped last week after a trade deal with the United States capped tariffs on Japanese goods at 15%, rekindling expectations for economic growth and potential rate hikes.

The yields slid lower this week as the market reassessed the pace of BOJ rate hikes. Doubts crept in about the resilience of global trade, with the United States continuing to use the threat of tariffs to strong-arm partners into deals.

Talks between the United States and China resulted in no major breakthroughs or a decision on whether to extend a trade truce that expires on August 12

"Ueda may become rather dovish in his comments at the post-meeting briefing," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management. "Uncertainty remains around the fate of trade talks between the U.S. and China."

The 20-year JGB yield JP20YTN=JBTC rose 0.5 bp to 2.545%.