By Hideyuki Sano and Dominic Lau
TOKYO, April 10 (Reuters) - Japanese government debt prices fell on Wednesday ahead of an auction of 30-year bonds this week, with investors locking in profits on sharp gains made after the Bank of Japan announced sweeping stimulus measures.
The five-year yield rose to a one-year high as investors were forced to dump that maturity after having bought too much of it before last week's easing in anticipation of the BOJ's buying.
In addition, the BOJ's radical policy ironically has raised uncertainty on the policy outlook, making investors nervous about holding bonds, some analysts said.
'The BOJ says they are going to lift inflation to 2 percent in two years but the market is not sure how that is possible. It's also not clear what the BOJ will be doing two years from now,' said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.
Yields on benchmark 10-year bonds added 7.5 basis points to 0.600 percent, pulling further away from a record low of 0.315 percent hit on Friday, and rising above its level before the BOJ's move.
Ten-year JGB futures fell 0.51 point to 144.16.
But the biggest pain was in five-year maturities, whose yield shot up 8.0 basis points, the biggest daily rise in more than four years, to 0.280 percent.
Before the BOJ unveiled on April 4 that it will inject $1.4 trillion into the economy in less than two years by buying government bonds across the yield curve, the five-year zone was investors' favourite on expectations that any increase in the BOJ's bond buying will centre on five-year bonds.
'People, probably banks, are moving away from the 5-year and below sectors, and are trying to put money into the long-end of the curve,' said Tadashi Matsukawa, head of Japan fixed-income at PineBridge Investments.
The longer end of the curve came under pressure ahead of Thursday's auction of 600 billion yen ($6.1 billion) of 30-year bonds, the first auction of any maturity after the BOJ's move.
The 30-year yield rose 6.5 basis points to 1.450 percent, although it was still below the level it was trading one day before the central bank announcement.
The 20-year yield gained 6.5 basis points to 1.360 percent, also still holding below its level the day before the BOJ decision.
JGBs have been highly volatile since the BOJ's unprecedented easing. The average daily move in the 30-year yield since the BOJ's decision has been about 11 basis points, compared to just over 2 basis points before that this year.
Traders say the BOJ's massive bond-buying plan will suck up available bonds from markets and hence will likely reduce market liquidity.
'JGBs used to be low-risk low-return. Now they are becoming high-risk low-return,' said Daiwa's Yamamoto.
(Editing by Richard Borsuk) Keywords: MARKETS JAPAN JGB/
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