JGB yields ease as Fed's Powell stays on script; BOJ succession in focus

By Kevin Buckland

TOKYO, Feb 8 (Reuters) - Japanese government bond yields edged lower on Wednesday in sympathy with their U.S. peers, as a heated labour market failed to spur further hawkishness from Federal Reserve Chair Jerome Powell.

Investors also awaited news on the next Bank of Japan governor, with the government's pick due to be announced on Friday.

The 10-year JGB yield fell 0.5 basis points to 0.485% as of 0500 GMT, edging away from the 0.5% ceiling under the BOJ's yield curve controls (YCC). Ten-year JGB futures rose 0.06 yen to 146.9.

The benchmark yield has touched 0.495% in three of the previous four sessions amid continued speculation that the central bank will soon tweak or even abandon YCC, particularly with BOJ Governor Haruhiko Kuroda's tenure ending in April.

Prime Minister Fumio Kishida told parliament he was still in the process of selecting Kuroda's successor. Earlier in the week, the Nikkei newspaper reported that the government had sounded out BOJ Deputy Governor Masayoshi Amamiya, a centrist candidate, for the job.

"Amamiya is the top candidate, and if he's chosen the market will calm down a little bit," said Naka Matsuzawa, chief macro strategist at Nomura in Tokyo. "But even under Amamiya, investors are still betting on a change to the policy framework."

U.S. 10-year Treasury yield declined 2.5 basis points to around 3.65% in Tokyo trading after Powell reiterated that disinflation was underway, but also said the surprisingly strong jobs data from Friday demonstrated that the fight against inflation will "take quite a bit of time."

Powell's comments reassured investors that rates may not need to rise much further.

Two-year Treasury yields, which are more sensitive to the policy outlook, fell 4.4 basis points to around 4.43%.

"Powell wasn't panicking about (the jobs situation) at least, and that calmed the short end," said Nomura's Matsuzawa, who sees the Fed continuing to hike rates at least until May.

The two-year JGB yield fell 0.5 basis points to -0.040%, while the five-year yield was flat at 0.175%.

The 20-year yield fell 1 basis point to 1.305%, and the 30-year JGB yield fell 2 basis points to 1.530%. (Reporting by Kevin Buckland; editing by Eileen Soreng)