Japan five-year bond yields hover near 17-year high before auction

By Rocky Swift

TOKYO, Dec 9 (Reuters) - Yields on five-year Japanese government bonds (JGBs) held near a 17-year high on Tuesday ahead of an auction of the notes and as investors priced in the likelihood of rate hikes by the central bank.

Japanese markets were also on edge following damage reports from a powerful earthquake that struck the northeastern region of the country late Monday evening.

The five-year yield JP5YTN=JBTC was steady at 1.445% after touching 1.45% on Monday, the highest since June 2008. The benchmark 10-year yield JP10YTN=JBTC held at 1.965%, just below the 18-year high of 1.97% touched in the prior session. The 20-year JGB yield JP20YTN=JBTC rose 0.5 basis point (bp) to an all-time high of 2.955%.

Japan's long-dated bonds have been under pressure following the announcement of a massive spending plan by Prime Minister Sanae Takaichi to be funded largely by new borrowing. Shorter-term notes, those most sensitive to central bank policy, are also down on signals the Bank of Japan is ready to raise rates.

The Ministry of Finance will sell about 3.5 trillion yen ($22.46 billion) in five-year paper later in the session.

BOJ Governor Kazuo Ueda said last week that policymakers would "consider the pros and cons" of tightening policy at its upcoming gathering. Ueda's comments at a Financial Times event later on Tuesday will be closely watched for signs of further tightening at future meetings.