TOKYO, April 2 (Reuters) - Japanese government bond (JGB) yields were mixed on Tuesday, as an auction for 10-year bonds saw firm demand despite caution ahead of the Bank of Japan's (BOJ) first bond-buying operation of the fiscal year.
The bid-to-cover ratio at the auction - a measure of demand - was 3.80, compared with 3.24 last month. A higher number signals greater demand.
Investors appeared to react positively to a reduction in the number of 10-year JGBs issued per month, seeing improvements in supply and demand in the market, Ryutaro Kimura, a fixed income strategist at AXA Investment Managers, said.
Some traders seemed to be covering short positions, he said.
The 10-year JGB yield fell as low as 0.720% after the results of the auction were published and was last 1.5 basis points (bps) lower at 0.725%.
Focus is now fixed squarely on the BOJ's bond-buying operation scheduled for Wednesday.
Investors are waiting to see whether the central bank will reduce its bond purchase amount following the end of negative interest rates and yield curve control last month.
While the BOJ said it will keep buying "broadly the same amount" of bonds as before, it lowered the upper bound of its purchase offer range across maturities for the April-June period.
A cut to the amount on Wednesday would likely put upward pressure on the yield curve, as it would shorten the time frame investors expect for quantitative tightening, AXA Investment Managers' Kimura said.
The BOJ has aggressively bought bonds to defend its ultra-low rate policy, pushing its ownership to more than half the market. That's affected liquidity and impaired market function.
BOJ Governor Kazuo Ueda has said the central bank will eventually scale back bond purchases.
The 20-year JGB yield rose 1.5 bp to 1.535%, and the 30-year JGB yield ticked up 1.5 bps to 1.845%. Both sat around two-week highs.
The two-year JGB yield was flat at 0.190%.
The five-year yield was 0.5 bp higher at 0.370%. (Reporting by Brigid Riley; Editing by Mrigank Dhaniwala)
