CORRECTED-JGB futures hit 10-mth high after Finmin QE comments

TOKYO, Dec 1 (Reuters) - Japanese government bond futures climbed to a 10-month high on Tuesday, after comments from Finance Minister Hirohisa Fujii boosted expectations for further monetary easing by the Bank of Japan.



* Fujii said on Tuesday he was open to a return to quantitative easing by the BOJ to help get the country out of deflation, while Banking Minister Shizuka Kamei warned that the central bank not to just 'pay lip service' to the problem.



* 10-year JGB futures climbed 0.20 point to 139.94 after hitting 139.98, their highest since mid-January.



* The yen's recent rally to a 14-year high against the dollar has raised concerns that it could hurt the economy and deepen deflation, putting the central bank under pressure from the government to do its part to help the economy. This has led to expectations of further monetary easing by the BOJ, nudging the five-year yield to four-year lows over the past week.



* Three-month euroyen futures rose 0.03 point to 99.610 after hitting 99.625, their highest since January 2006 following comments by Fujii.



* The five-year yield fell 2.5 basis points to 0.510 percent , a fresh four-year low. The benchmark 10-year yield dipped 0.5 basis point to 1.250 percent.



* 'Fujii's comments were quite bold and triggered the market's move up. BOJ governor Shirakawa also appears to have acknowledged deflation, and the feeling is that the government and the central bank can't come out of this without doing something,' said Noriyuki Fukuda, a fixed-income strategist at Morgan Stanley.



* Japan's Ministry of Finance offered 2.2 trillion yen ($25.5 billion) of 1.3 percent coupon 10-year JGBs on Tuesday, with the tender results to be released at 0345 GMT. The monthly issuance amount has been increased by 100 billion yen as part of the MOF's plan to boost the amount of bonds sold to the market to make up for low demand for JGBs tailored to retail investors.



* Market watchers expect decent demand to emerge from investors looking for higher yields as short to midterm JGB yields have declined sharply recently.



* The focus going into the auction was on whether recent expectations for further easing by the Bank of Japan would be able to offset concerns over a possible bond supply increase.



* Japan's Nikkei business daily reported that the government plans to spend 1 trillion yen on measures to support small and midsize businesses as it boosts spending in an extra budget for the fiscal year to March 2010.



* The government is expected to compile an economic stimulus package this week to help the economy, and the market's focus is on whether Japan will turn to debt issuance to help finance the package.



(Reporting by Shinichi Saoshiro; Editing by Joseph Radford) (([e-mail]; Reuters Messaging: [e-mail]; [phone])) ($1=86.25 Yen) Keywords: MARKETS JAPAN JGB (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.