TOKYO, July 16 (Reuters) - Japan's 10-year government bond yield fell to a three-week low on Tuesday, as market players moved to cover their short positions amid rising expectations of a U.S interest rate cut in September.
The 10-year JGB yield fell 3 basis points (bps) to 1.015%, its lowest since June 26. The 20-year yield also fell 3 bps to 1.835%, also its lowest since June 26.
"There was little market-moving catalyst in Japan, so the yields fell on overseas cues, which was expectations for the U.S. rate cut," said Miki Den, senior Japan rate strategist at SMBC Nikko Securities.
Economic data on producer prices and consumer sentiment released last week bolstered expectations that the Federal Reserve was likely to cut interest rates at its September meeting.
Bets of a 25 bps rate cut in September are at 87.6%, according to the CME FedWatch Tool.
Den said the downward trend will not last long as there are uncertainties about the details of the Bank of Japan's bond purchases.
The BOJ said last month it would lay out a detailed bond-tapering plan at its July 30-31 policy meeting, which will cover a period of around one to two years.
"Until the policy meeting, investors will stay away from active buying and the yields are unlikely to drop further," Den said.
The 30-year JGB yield fell 2 bps to 2.15% and the 40-year yield fell 3 bps to 2.4%.
The two-year yield fell 1.5 bps to 0.31%.
The five-year yield fell 2 bps to 0.56%. (Reporting by Junko Fujita; Editing by Varun H K)
