Dec. 1 (Bloomberg) -- Japan’s 10-year bonds may fall for a second day on speculation dealers will sell debt to protect against losses at an auction of the securities tomorrow.

Ten-year yields are likely to reach the highest in a week as primary dealers bidding at the 1.9 trillion yen ($19.9 billion) sale reduce holdings in case prices decline before they can pass on the new securities to investors. The Bank of Japan will hold an emergency policy meeting this week, NHK reported, without saying where it obtained the information.

“Ten-year bonds will be relatively weak,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., the Japanese unit of the second-largest U.S. bank by assets.

Ten-year bond futures for December delivery were little changed at 139.41 as of 9 a.m. at the Tokyo Stock Exchange.

The benchmark 10-year bond hasn’t traded yet today at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield on the 1.5 percent bond due in September 2018 rose two basis points to 1.395 percent on Nov. 28. A basis point is 0.01 percentage point.

“There seems to be some resistance in breaking the 1.355 percent level,” Nikko Citigroup’s Sano said.

The prior sale of 10-year securities on Nov. 5 drew bids worth 2.28 times the amount on offer, compared with a so-called bid-to-cover ratio of 2.58 at the October sale. Last year’s average ratio was 3.05 times.

“Domestic investors’ needs are weak,” said Akihiko Inoue, an analyst at Mizuho Investors Securities Co. in Tokyo.

Emergency Meeting

The central bank will discuss creating a system to lend money to commercial banks and to encourage them to provide financing to businesses, public broadcaster NHK said.

The Bank of Japan is scheduled to hold a two-day policy meeting ending Dec. 19. There is a seven percent chance the BOJ will reduce interest rates by the end of this month, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

Last Updated: November 30, 2008 19:03 EST