JGB yields rise as markets prepare for BOJ hold this month

(Updates yield levels, adds details about market expectations)

By Brigid Riley

TOKYO, Dec 16 (Reuters) - Japanese government bond (JGB) yields rose on Monday, tracking U.S. Treasury yields as investors awaited monetary policy decisions by the Federal Reserve and the Bank of Japan (BOJ) later this week.

The 10-year JGB yield climbed 3 basis points (bps) to 1.065%, while 10-year JGB futures fell 0.25 points to 142.32 yen.

Market expectations for an interest rate hike in Japan this month were volatile after a couple of media reports earlier suggested the BOJ may stand pat at its Dec. 18-19 monetary policy meeting.

Following an announcement that BOJ Deputy Governor Ryozo Himino will speak on Jan. 14 and further media coverage, bets for a December rate hike have significantly faded.

Markets now see only about a 21% chance of a rate hike from the BOJ this week.

Elsewhere, benchmark 10-year U.S. Treasury yields rose to a three-week high on Friday before the Fed is expected to cut rates on Wednesday by 25 bps and signal it will pause rate cuts as it grapples with inflation running above its 2% annual target.

"Given that U.S. interest rates have risen this much, I think that is having the greater impact" on the JGB market on Monday than any adjustments related to the BOJ's meeting, said Hiroshi Namioka, chief strategist at T&D Asset Management.

Reuters reported last week that the BOJ is leaning towards keeping rates steady in December as policymakers prefer to spend more time scrutinising overseas risks and clues on next year's wage outlook.

The two-year JGB yield edged up 1.5 bps to 0.575%, while the five-year yield rose 2.5 bps to 0.715%.

The 20-year JGB yield jumped 4 bps to a two-week high of 1.88% ahead of an auction for the bonds on Tuesday.

The 30-year JGB yield was up 3.5 bps at 2.275%.

The 40-year JGB yield climbed 3 bps to 2.64%.

(Reporting by Brigid Riley; Editing by Eileen Soreng)