JGBs sit tight before BOJ, market braced for Fed

By Naomi Tajitsu

TOKYO, Oct 31 (Reuters) - Japanese government bonds barely moved on Wednesday as investors sat tight for the Bank of Japan's economic outlook report later in the day and a widely expected rate cut by the Federal Reserve.

With the BOJ widely seen holding its overnight rate at 0.5 percent, investors were waiting to see if the Japanese central bank will cut its forecast for prices and growth in its twice-yearly report, which is due after its policy meeting.

Governor Toshihiko Fukui will hold a press conference following the report.

"The market is waiting to see the extent to which the BOJ sees downside risks to the U.S. economy affecting Japan's economic scenario," said Makoto Yamashita, chief JGB strategist at Lehman Brothers.

Some analysts said that the BOJ may downgrade its price outlook for the current financial year, while maintaining its view that consumer prices will pick up next year, paving the way for a gradual rise in rates in the future.

December futures 2JGBv1 edged down 0.02 point to 136.02 by mid-session, but hovered near a six-week high of 136.26 touched last week. Yamashita said he expected the lead contract to stick close to 136.00 all day in the lead-up to Wednesday's big events.

The yield on the benchmark 10-year JGB <JP10YTN=JBTC> slipped half a basis point to 1.605 percent ahead of a 1.9 trillion yen ($16.6 billion) auction in the maturity on Thursday.

The two-year yield <JP2YTN=JBTC> was unchanged at 0.775 percent following an auction in the maturity on Tuesday that attracted solid demand, while the five-year yield <JP5YTN=JBTC> inched up half a basis point to 1.085 percent.