JGB yields fall as bets on spending, rate hike ease

By Junko Fujita

TOKYO, Feb 10 (Reuters) - Japan's government bond yields fell on Tuesday, as worries about the nation's expansionary spending and bets for the Bank of Japan's interest rate hike eased.

The benchmark 10-year JGB yield JP10YTN=JBTC fell 2.5 basis points (bps) to 2.265%. The five-year yield JP5YTN=JBTC fell 3 bps to 1.71%.

A historic win for the Liberal Democratic Party in the lower house election on Sunday boosted the chances of Prime Minister Sanae Takaichi proceeding with stimulus measures.

She had pledged to ease household living costs by suspending for two years the 8% tax on food, a move she has called a "long-cherished dream".

"Investors expect that Takaichi may not hurry in cutting the taxes on food because the landslide gives her control to move ahead," said Eiichiro Miura, senior general manager of investments at Nissay Asset Management.

On Monday, yields on shorter-maturity bonds jumped as the market braced for a weaker yen. The 2-year bond yield JP2YTN=JBTC rose to its highest since May 1996, the 5-year JGB JP5YTN=JBTC to a record high.

"It turned out that the yen did not weaken, so the expectations for the BOJ's early rate hike weakened today," Miura said.

The market had expected a revival of the so-called Takaichi trade in the post-election period, where a fiscal dove prime minister would send the yen and bonds weaker while stocks rose. A weaker yen typically boosts import costs, driving domestic prices higher.

Bonds with other maturities have not been traded as of 0100 GMT.

The 10-year JGB futures were last up 0.32 point.