Japan's 10-year bond yield slips ahead of auction

By Junko Fujita

TOKYO, Jan 6 (Reuters) - Japan's 10-year government bond yield edged lower on Tuesday as investors awaited the outcome of a same-maturity bond auction due later in the day.

The 10-year JGB yield JP10YTN=JBTC fell 1 basis point (bp) to 2.105%.

"The auction is expected to receive modestly firm demand," said Miki Den, a senior Japan rate strategist at SMBC Nikko Securities.

"The market sees few reasons to buy the 10-year bonds now but their yield level is attractive," he said.

The 10-year bond yields climbed to a near three-decade high in the previous session, as markets braced for further interest rate hikes by the Bank of Japan.

The bets are growing that the BOJ will raise interest rates faster and higher to reverse the trend of the weak yen. The yen has struggled to regain ground as markets expect the pace of the BOJ's rate hikes will remain slow.

The central bank raised its policy rate to 0.75% from 0.5% last month, but Governor Kazuo Ueda has offered no hints on the timing of further increases.

A weaker yen raises import costs and stokes inflation, reinforcing expectations for further interest rate hikes by the BOJ.

The two- and five-year bonds have not been traded as of 0051 GMT.

Yields on longer-dated bonds rose, with the 20-year JGB yield JP20YTN=JBTC inching up 0.5 bp to 3.050%.

The 30-year JGB yield JP30YTN=JBTC rose 1.5 bps to 3.470%.

The finance ministry is set to auction about 2.6 trillion yen ($16.59 billion) of 10-year bonds later in the day.

($1 = 156.7400 yen)