By Nobuyuki Akama Dec. 8 (Bloomberg) -- Japan’s two-year note yields will fall at a limited pace because the Bank of Japan will refrain from cutting interest rates, Diam Asset Management Co. said. Two-year yields dropped to a four-year low of 0.165 percent on Dec. 1 after the central bank unveiled a 10 trillion yen ($112 billion) program to offer three-month loans at 0.1 percent interest. Two-year yields have stayed near or below 0.2 percent since the plan was announced at an emergency meeting. “Given there will be no interest-rate cuts, yields up to two years have reached low enough levels,” said Nobuto Yamazaki, an executive fund manager at Diam Asset in Tokyo. The policy board kept the key overnight lending rate at 0.1 percent at the meeting, a level that BOJ Governor Masaaki Shirakawa said was already effectively zero by global standards. Ten-year yields are likely to fall no lower than 1.15 percent, Yamazaki said. The yield fell to 1.19 percent on Dec. 1, the lowest level since January, before rising above 1.3 percent for the first time in two weeks yesterday. Two-year yields were little changed at 0.175 percent as of 10:49 a.m. in Tokyo. Ten-year yields fell one basis point to 1.275 percent from yesterday. To contact the reporter on this story: Nobuyuki Akama at akam@bloomberg.net.

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