Japan's short-end bond yields fall on bets for slow rate hike

By Junko Fujita

TOKYO, Feb 25 (Reuters) - Japan's shorter-dated bond yields fell further on Wednesday, as bets grew that the Bank of Japan may not hurry in raising rates after a report on Prime Minister Sanae Takaichi's concerns about policy tightening.

The two-year yield JP2YTN=JBTC fell 2.5 basis points (bps) to 1.215%. The five-year yield JP5YTN=JBTC fell 2.5 bps to 1.570%.

The yields started falling on Tuesday after local media said Takaichi expressed reservations about additional interest rate hikes during her meeting with BOJ Governor Kazuo Ueda last week.

The 30-year yield JP30YTN=JBTC rose 5 bps to 3.325% and the yield on the 40-year JGB JP40YTN=JBTC rose 5 bps to 3.565%, steepening the yield curve.

"It may be too early for the curve to steepen, as it was not clear from the report at which time Takaichi did not want the BOJ to raise rates," said Takashi Fujiwara, chief fund manager at Resona Asset Management's fixed income investment division.

"There is a possibility that the BOJ will raise rates later this year."

The 10-year JGB yield JP10YTN=JBTC was flat at 2.1%.

The government will likely present nominees as early as Wednesday to fill two seats opening up at the central bank board.

The market eyes the list, which includes some reflationists who may support Takaichi's dovish stance.

The premier has authority to pick successors to Asahi Noguchi, seen as the board's last remaining reflationist whose term ends in March, and Junko Nakagawa, who comes from the financial industry and will retire in June.