REFILE-JGB yields inch down on bets Takaichi may shelve tax cuts

By Junko Fujita

TOKYO, Feb 4 (Reuters) - Japanese government bond yields inched lower on Wednesday as fears of worsening fiscal conditions eased on bets that Prime Minister Sanae Takaichi may walk back her pledge to cut consumption taxes on food.

The benchmark 10-year JGB yield JP10YTN=JBTC fell 1 basis point (bp) to 2.245%. The five-year yield JP5YTN=JBTC fell 1 bp to 1.670%. The two-year yield JP2YTN=JBTC also fell 1 bp to 1.27%

"There is a growing bet in the JGB market that Takaichi may not implement tax cuts on food, as she has not stressed the issue during the election campaign," said Tomoaki Shishido, senior rates strategist at Nomura Securities.

"I would say volatilities in the bond market have eased," he said.

JGBs plunged last month, sending yields to record highs, when Takaichi called for a snap election and pledged to suspend the sales tax on food as part of her campaign.

Local media reported Takaichi's party is likely to score a landslide victory in the election.

"If her party wins at the election, there may be no need to cut the tax," Takashi Fujiwara, chief fund manager at Resona Asset Management.

Investors were tempted to buy bonds to unwind short positions they made for potential rises in yields as the market may become calm after the election, Fujiwara said.

The 20-year JGB yield JP20YTN=JBTC was flat at 3.180%. The 30-year yield JP30YTN=JBTC was flat at 3.180%