By MEGUMI FUJIKAWA TOKYO—Japanese government bond yields fell Tuesday, as bond buying got support from increasing expectations for additional easing by the Bank of Japan and sharp gains in U.S. Treasurys overnight. Trading was sluggish due to caution before the release of a key BOJ tankan business sentiment survey Wednesday. The benchmark 10-year yield was down 0.035 percentage point at 0.960%. Bond yields move inversely to prices. Speculation is growing that Japan's central bank may take further action as early as next month to ease negative impact of the surging yen on the overall economy and business sentiment. The BOJ's policy board is scheduled to hold a policy-setting meeting Oct. 4-5, and will meet again Oct. 28 to discuss semiannual forecasts for the economy and prices. The easing talk already boosted demand for policy-sensitive two-year government bonds at an auction. Japan's Ministry of Finance sold 2.4311 trillion yen ($28.86 billion) of the two-year bonds at a lowest price of 99.92, slightly higher than market expectations for 99.91, yielding 0.14%. The new bonds carry a coupon of 0.1%, unchanged from the previous issue and the same as the Bank of Japan's policy target interest rate. With 13.9809 trillion yen in total bids, the bid-to-cover ratio, one measure of demand, improved to 5.75 from 4.75 at the last two-year sale in August. A higher bid-to-cover ratio is an indication of stronger demand. However, some analysts are skeptical that the BOJ's accommodative policy stance alone will help push long-term yields further down. "While yields could still fall if U.S. rates or other external factors encourage such a decline, it is difficult to see much downside at this stage due to the BOJ's policy alone," said Chotaro Morita, chief strategist at Barclays Capital.

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