TOKYO, April 1 (Reuters) -
Japanese government bond (JGB) yields rose on Monday amid a cautious mood, as investors eyed a key bond auction and the Bank of Japan's first bond purchase operation of the new fiscal year.
The 10-year JGB yield climbed to a little more than a one-week high of 0.745% ahead of an auction for the bond on Tuesday. It was last up 1.5 basis points (bps) at 0.740%.
Attention is on the BOJ's first bond buying of the new fiscal year on Wednesday, with investors "keenly" watching for changes to the offer amount, said Naka Matsuzawa, chief macro strategist at Nomura.
While the BOJ said at its March policy meeting that the monthly purchase amount would stay roughly the same, it scaled back the upper bound of its purchase range for the April-June period.
Matsuzawa expects the central bank to gradually set the purchasing amount toward the lower end of its offer range in this period. Policymakers could then decide on reducing monthly purchases at a later meeting, depending on how hawkish a message it wants to send.
"That's going to be a very strong step toward balance sheet runoff" when the BOJ does reduce overall purchases, he said.
BOJ Governor Kazuo Ueda said the central bank will eventually scale back bond purchases.
The central bank has been an aggressive bond buyer to defend its ultra-low rate policy. That has pushed its ownership to more than half the market, putting a squeeze on liquidity and impairing market function.
The BOJ's outright purchase of JGBs was 87.5809 trillion yen ($578.55 billion) in the fiscal year through March, a filing showed on Monday, down from the previous year's record 135.989 trillion yen.
The total purchases in March stood around six trillion yen, largely unchanged from February.
The 20-year yield rose 2.5 bps to 1.515%, while the 30-year yield was up 2 bps at 1.830%. Both stood around two-week highs.
The five-year yield ticked up 1.5 bps to 0.365%. ($1 = 151.3700 yen) (Reporting by Brigid Riley; Editing by Varun H K)
