Key June Japanese government bond (JGB) futures ended Friday's Tokyo session higher on short-covering by dealers ahead of the weekend.

The benchmark futures contract closed up 0.23 at 123.98, after trading between 123.73 and 124.12. Turnover was 46,745 lots.

"Today's activity was dominated by dealers' position adjustment. Investors were on the sidelines," a trader at a brokerage house said.

Traders said a rise in Tokyo stocks was largely ignored by bond market participants.

"People are getting used to seeing an above-20,000 Nikkei. If the Nikkei settles down at around current levels, the implication for JGBs may be neutral," said a trader at a city bank's securities unit.

The Nikkei 225 stock average ended up 268.42 points, or 1.34 percent, at 20,324.73.

In the morning session, JGB futures received a temporary boost from an outright bond purchase by the Finance Ministry's Trust Fund Bureau.

Stronger-than-expected growth in Japan's money supply in April had limited impact on JGBs, traders said.

Japan's broadly defined money supply average of M2 plus certificates of deposit (CDs) grew a preliminary 3.1 percent year-on-year in April, well above the 2.5 to 2.8 percent forecast range. M2 Plus CDs rose a revised 2.8 percent year-on-year in March.

In low coupon cash 10-year JGBs, such as the 2.6 percent 193rd JGB, some loss-cut selling was detected in the morning, but small-lot buying emerged in the afternoon, traders said.

"Buying in cash JGBs at the long-end of the yield curve was a factor that discouraged downside tests in JGB futures," the brokerage house trader said.Traders said market participants were cautious ahead of next week's US FOMC meeting on Tuesday and a 10-year JGB auction.

Market sources said the finance ministry is expected to hold a 10-year JGB auction next Wednesday.

"Next week's 10-year JGB auction will be a very important gauge of investors' stance after the recent correction," said a trader at another brokerage house. Traders expect the coupon rate for the new 10-year JGB to be set at either 2.7 or 2.8 percent, compared with a record low 2.4 percent in the previous offering.

Short-covering in the June futures contract is expected to increase ahead of the expected shift in the benchmark futures contract, traders said.

The September contract is likely to take over as the benchmark from the June contract before the end of this month, traders said.

"We could see a change in the benchmark as early as in the latter half of next week, but it may be delayed until the final week of May," said a brokerage house trader.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.