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By Junko Fujita
TOKYO, June 23 (Reuters) - Japan's first exchange traded fund that lets investors bet against government bond futures launched on Friday, with its price inching up slightly as traders wagered on a policy shift by the Bank of Japan (BOJ) that would hurt the bond market.
The exchange traded fund (ETF), Nomura NEXT FUNDS JPX JGB Futures, is managed by Nomura Asset Management, an arm of Nomura Holdings, and shorts futures, paying twice the returns if 10-year JGB futures fall.
Its launch comes on the same day as data showed Japan's core inflation rate hit a four decade high and with expectations building that the BOJ will soon respond by moving to adjust its extremely loose monetary policy settings.
"Investors started betting on rate hikes in Japan as the BOJ is seen under pressure to tweak its loose-monetary policy, which it has maintained for a long time," said Masafumi Watanabe, head of ETF business department at Nomura Asset Management.
"We expect certain demand for tools to hedge against such a move through vehicles like ETFs which are easily tradable in the market."
The fund held 750 million yen ($5.2 million) worth of assets as of Thursday and comprised 1 million units.
The BOJ maintains a limit on 10-year government bond yields of 0.5% either side of zero and there is growing speculation that could be widened or abandoned, which would send bond prices and bond futures sharply lower and benefit Nomura's ETF holders.
The BOJ in December surprised the market by widening the yield band to 50 bps from 25 bps. Nomura's Watanabe said the advantage of ETFs over directly shorting futures was that investors do not need to roll over their contracts regularly.
The unit price for Nomura NEXT FUNDS JPX JGB Futures was last at 748.9, compared with its base price of 748.5. The benchmark JGB futures was last up 0.01 point at 148.77.
"It's hard to expect how big the asset of this ETF will grow in the future. But if market players bet on the rate hike, the assets will certainly grow," said Watanabe.
($1 = 143.0300 yen) (Reporting by Junko Fujita Editing by Shri Navaratnam)