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TOKYO, Sept 13 (Reuters) - Japanese government bond yields fell across the curve on Wednesday, as investor sentiment improved after firm demand at an auction and the Bank of Japan (BOJ) stepped in the market.
The 10-year JGB yield fell to as low as 0.695% and was last seen at 0.700%, down 0.5 basis point (bp) from the previous session. The five-year yield fell 0.5 bp to 0.270%.
On Monday, yields surged across tenors after BOJ Governor Kazuo Ueda singalled an early end to the bank's negative rate policy in an interview with a local newspaper.
"The smooth auction for the five-year bonds in the previous session removed concerns about the market outlook," said Takafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities.
The outcome was better than expected as investors had already anticipated yield levels when short-term interest rates are guided to zero under a possible tweak of BOJ's policy, said Yamawaki.
The BOJ currently guides short-term interest rates at -0.1% under its negative rate policy. It also caps the 10-year government bond yield at around zero.
Market players said the BOJ's measures to contain rising yields also helped the yields fall. The central bank on Monday said it would offer five-year loans to financial institutions, a move to encourage banks to buy five-year bonds.
The details of the terms for the BOJ's loans will be announced on Thursday, the same day the Ministry of Finance conducts a 20-year bond auction.
The 20-year JGB yield fell 3 bps to 1.430% and the 30-year JGB yield declined 4.5 bps to 1.675%.
The 40-year JGB yield fell 3.5 bps to 1.840%.
Benchmark 10-year JGB futures rose 0.05 yen to 145.58. (Reporting by Junko Fujita; Editing by Varun H K)