Japanese government debt fell on Wednesday, with the 10-year yield hitting a two-month high, on expectations that incoming Prime Minister Shinzo Abe would increase pressure on the central bank to ease policy further. The 10-year yield added 2 basis points to 0.785 percent to its highest level since November 1, while JGB 10-year futures fell 26 ticks to 143.66 in active trade after trading as low as 143.58, their lowest level since September 19.

"Mr Abe and the Liberal Democratic Party look like they want the dollar/yen to be at least above 85, or possibly 90. They want the yen to be weaker than the current level," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments. "We continue to see equities going high, so the pressure is on the long-end of the JGB curve. For the short-end of the curve, we continue to see the BOJ ease aggressively, so there is no change in that."

BOJ policymakers debated their various options, such as an open-ended commitment to buy assets, as early as in November, minutes from the central bank's rate review showed, a sign that they were already leaning toward action back than on the worsening economic outlook.

Copyright Reuters, 2012