JGB superlong yields rise, 10-year hovers at top of BOJ policy tolerance band

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By Kevin Buckland

TOKYO, Sept 16 (Reuters) - The 10-year Japanese government bond yield was flat on Friday, hovering around the upper limit of the Bank of Japan's policy band, while superlong yields rose amid bets the U.S. Federal Reserve will continue with aggressive interest rate hikes.

The 10-year JGB yield was unchanged from the previous session at 0.250% as of 0422 GMT. The BOJ pins the benchmark yield at zero percent plus of minus 25 basis points as part of its yield curve control stimulus.

Benchmark 10-year JGB futures fell 0.04 point to 148.52, heading back toward Thursday's 2 1/2-month low at 148.43.

Overnight, the U.S. two-year Treasury yield - which is particularly sensitive to policy expectations - rose to a fresh 15-year high at 3.879% following an unexpected rebound in the latest retail sales figures, suggesting the Fed has leeway to announce aggressive rate hikes.

Traders expect the Fed to hike rates by at least another 75 basis points on Wednesday, with fund futures showing a 24% chance policymakers will raise rates by a full percentage point, according to the CME Fedwatch Tool.

Despite global monetary policy tightening pressure, the BOJ - which ends its two-day policy meeting on Thursday - is widely seen holding stimulus settings unchanged.

The BOJ again on Friday morning offered to buy an unlimited amount of 10-year notes at a yield of 0.25% to protect its policy band.

Meanwhile, Japan's Finance Minister Shunichi Suzuki warned he would not rule out any options if sharp weakening in the yen persisted, hinting at possible currency intervention.

Japan's 20-year yield rose 1 bp to 0.935%, and the 30-year yield added 2 bps to 1.270%.

"Yesterday's record-weak 20-year JGB auction result is still reverberating in the market, resulting in continued softness in superlong bonds," said said Katsutoshi Inadome, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Two-year JGBs had not yet been traded, last yielding -0.080%. The five-year yield was flat at 0.045%. (Reporting by Kevin Buckland; Additional reporting by Tokyo markets team; Editing by Rashmi Aich)