TOKYO, May 7: Key June 10-year Japanese government bond (JGB) futures closed slightly firmer on Wednesday after recouping sharp morning losses. Panicky sales followed falls on Tuesday of more than one yen triggered by larger-than-expected gains in Tokyo stocks, pushing down the contract soon after the opening.

But the June stopped falling above its year low of 123.60, underpinned by investors' bargain-hunting in cash bonds, traders said. The June finished Tokyo up 0.03 at 124.45.

"A view spread in the afternoon that the market's tumble isover for now," said dealer a city bank's securities unit.

A hectic 80,964 contracts changed hands. The June fell as low as 123.68 soon after opening at 124.32. Its quick recovery in the afternoon to a day high of 124.71 was attributed to short-squeezing by dealers, including banks, who had sold earlier for hedging.

Tokyo stock gains were pared in the afternoon, also giving a support to JGBs, traders said.

A dealer at a "Big Four" brokerage house said that the fact that the 192nd 2.7 percent 10-year JGB stopped falling at a price of par suggested that investors' buying interest was still strong, although they would not buy in a rally.

Referring to an earlier market view that either the 182nd or the 193rd 10-year JGB yield could fall to and below two percent due to tight demand/supply balance, the dealer said: "The scenario that many operators, including me, believed in looks far from reality now."

"Nobody would buy JGBs given such a bullish view. But public funds and other investors may have to buy to achieve capital gains. This would result in a directionless market with 10-year JGB yields moving between 2.5 and 2.8 percent in the near future," he said. The 2.6 percent 193rd 10-year JGB due in March 2007 was yielding 2.625 percent at 0719 GMT.

The bond yield hit a life high of 2.710 percent earlier in the day, against Tuesday's 2.610 close. The yield of the benchmark 182nd JGB stood up 0.005 at2.425 percent at 0742 GMT. It briefly rose to 2.520 percent, its highest rate since January 10. Some selling emerged in mid-morning after Bank of Japan Governor Yasuo Matsushita said the BOJ would take pre-emptive steps to achieve sustainable economic growth without inflation. Matsushita also said in a parliamentary committee meeting that monetary policy should not be relied on heavily to correct current account imbalances.

However the BOJ governor's comments did not have a lasting mpact, traders said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.