JGBs fall in quiet trade ahead of Fed meeting

TOKYO, May 9 (Reuters) - Japanese government bonds fell on Wednesday as some investors booked profits after gains in the past week, while others retreated to the sidelines ahead of a Federal Reserve policy meeting later in the day.

While the U.S. central bank is widely expected to hold interest rates at 5.25 percent, the focus of the market will be on its post-meeting statement.

Some think the Fed will tweak its language to suggest that it is now moving to a "neutral" risk assessment, especially after recent tame inflation data and growth figures pointed to a slower economic expansion.

The Bank of Japan has said developments in the U.S. economy are one factor the Japanese central bank takes into account when it decides monetary policy.

"If the Fed shifts its stance to fully neutral one, it will support JGBs," said Mitsumaru Kumagai, chief JGB strategist at Merrill Lynch.

"But JGB yields will have only a limited scope to drop as they have already been near the lower end of ranges," he said.

JGBs rallied last week following the BOJ's tame inflation forecast in its twice-yearly economic outlook report along with data showing a steeper-than-expected drop in core consumer price in March.

June futures 2JGBv1 fell 0.16 point to 134.06, moving away from a 1-1/2-month high of 134.61 hit last week.

The benchmark 10-year yield JP10YTN=JBTC rose 1 basis point to 1.660 percent.

The two-year yield JP2YTN=JBTC edged up 1 basis point to 0.860 percent.