* ECB may talk of rosier economic outlook
* Could pave way for monetary tightening signals
* BOJ most optimistic about economy in nine years
* German states report solid inflation rates
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
(Adds quote, German data)
By John Geddie
LONDON, April 27 Euro zone government bond
yields nudged up on Thursday with the bloc's central bank
expected to reiterate Japan's acknowledgment of better growth
prospects in a move that could pave the way towards tighter
The European Central Bank's meeting on Thursday comes
immediately after solid inflation data from the bloc's biggest
economy and a Bank of Japan meeting overnight at which it
offered its most optimistic economic assessment in nine years.
While the BOJ kept monetary policy unchanged, for the first
time since 2008 it used the word "expansion" in describing the
state of the economy, signalling that it sees no need for
The ECB is also expected to keep its ultra-easy stance
firmly in place but may talk of a rosier economic outlook,
setting the stage for a small signal as early as June about an
eventual reduction of stimulus.
That could involve interest rate hikes and a slow withdrawal
of its asset purchase scheme, likely to precipitate a decline in
the value of bonds and a rise in yields.
David Lloyd of British asset management firm M&G Investments
said that his "conversations with central bank staffers" suggest
the ECB is not concerned about market ructions that tightening
policy would cause.
"Any sense of systemic risk, like the vulnerability of major
financial institutions, they are all over that like a rash. But
if we get a massive sell-off in the bond market and people lose
money then they are entirely relaxed about that," said Lloyd,
the firm's head of institutional portfolio management.
Benchmark German Bund yields -- which move inversely to
prices -- climbed 2 basis points to 0.37 percent in early trades
on Thursday, heading back towards 14-month highs of 0.51 percent
seen in the wake of the ECB's last meeting, at which it
signalled a diminishing urgency for policy action.
A number of German states on Monday reported a rise in
year-on-year inflation, with some reporting rates in April above
the ECB's near 2 percent euro zone-wide target. National data is
due at 1200 GMT.
Policymakers tried to downplay the ECB's eagerness to
withdraw stimulus in the wake of the March meeting, while nerves
around the French election and disappointing economic data have
since reversed some of the yield rise and tempered rate hike
But Reuters reported this week that policymakers, relieved
after the first round of France's presidential vote put a
pro-euro centrist in pole position, may in June once again
change the wording of the ECB's opening statement.
Any comments on Thursday about the bloc's improving economic
prospects could be a nod to that, but some investors still feel
policymakers will be reluctant to signal a major policy shift.
"The (ECB's) language around the 'downside risk to growth'
may go, but anything too explicitly hawkish would be harmful for
monetary policy transmission," said Mizuho strategist Peter
"I think we will hear that QE will be in place for a long
time to come."
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Dhara Ranasinghe and Abhinav
Ramnarayan; Editing by Catherine Evans; editing by John