Japan's shorter-dated bond yields, yen fall after report of Takaichi's reservation about rate hikes

By Junko Fujita

TOKYO, Feb 24 (Reuters) - Yields on shorter-dated Japanese bonds and the yen fell sharply in late trade on Tuesday after a report said that Prime Minister Sanae Takaichi had voiced concerns about the central bank raising interest rates further.

The two-year yield JP2YTN=JBTC, the most sensitive to the Bank of Japan's policy rates, slipped 3.5 basis points (bps) to 1.215%, its lowest since January 23. The five-year yield JP5YTN=JBTC fell 4 bps to 1.565%, its lowest since January 9. The yen fell more than 1% against the dollar.

Takaichi conveyed her reservations about further rate hikes when she met with BOJ Governor Kazuo Ueda last week, the Mainichi daily reported.

Ueda had characterised the meeting last Monday as a general exchange of views on economic and financial developments.

The news came as bond prices and the yen rose after the February 8 national election, said Shuichi Ohsaki, a senior portfolio manager at Meiji Yasuda Asset Management.

"This might be a signal that Takaichi trade may be back," he said.

The Takaichi trade typically refers to a market trend where the yen weakens and super-long dated bonds fall on concerns about government spending. Fiscal expansion works favourably for local stocks.

Yields on super-long Japanese government bonds have been declining and the yen JPY= has held its momentum against the dollar since Takaichi's Liberal Democratic Party won a landslide victory on February 8.

The yield curve has flattened since then as declines in shorter-dated yields have been contained on growing bets that the BOJ will hike interest rates earlier than expected.

The 10-year JGB yield JP10YTN=JBTC was flat at 2.105%.

The 20-year JGB yield JP20YTN=JBTC fell 2 bp to 2.89% and the 30-year yield JP30YTN=JBTC fell 2.5 bps to 2.875%.