By Masayuki Kitano
TOKYO, Sept 15 (Reuters) - Japanese government bonds ralliedbroadly on Wednesday, as Prime Minister Naoto Kan's win in aruling party leadership vote the previous day soothed worriesthat the government might lean towards a more expansionary fiscalpolicy.
JGBs took in stride news that Japanese authorities hadintervened in the currency market to sell yen for the first timein six years, in a move currency traders said would only slow theyen's persistent rise.
"Market players seem to be taking the view that this isunlikely to lead to a trend of yen weakness," said Kazuhiko Sano,a fixed-income strategist at Tokai Tokyo Securities, adding thatJGBs took their cue from the outcome of Tuesday's ruling partyleadership election.
Kan defeated rival Ichiro Ozawa, who had said he wouldconsider issuing more debt if the economy worsened. Ozawa hadalso been more outspoken in calling for monetary stimulus andyen-selling intervention to help beat deflation.
Ozawa's decision to run in the ruling party election had beena catalyst behind a recent sell-off in JGBs that began in lateAugust after the 10-year JGB yield touched a seven-year low of0.895 percent.
"I think this shows there had been a lot of money that waswaiting in the wings, looking for a chance to buy," said AkitoFukunaga, chief rate strategist at RBS Securities.
Gains were led by super-long bonds, which had been sold offthe most since late August, with the 20-year JGB yield sliding byas much as 14 basis points on the day to an intraday low of 1.750percent.
After trimming some gains, the 20-year yield stood at 1.755percent, well off a three-month high of 1.975 percent hit onTuesday ahead of an auction in that maturity and the ruling partyvote.
Lead December 10-year Japanese government bond futures surged0.74 point to 142.12 and the benchmark 10-year JGB yield fell 9.5basis points to 1.035 percent.
Fukunaga at RBS Securities said the 20-year JGB yield wouldprobably move between 1.975 percent and 1.510 percent, a troughhit in late August, for the rest of the year.
If the 20-year yield approaches the August low, that wouldprobably re-ignite worries that JGBs may have rallied too far,Fukunaga said. (Editing by Michael Watson)