JGBs fall as dealers book profits, Shirakawa eyed

By Rika Otsuka

TOKYO, May 12 (Reuters) - Japanese government bond futures fell on Monday as dealers locked in profits after a surge late last week, while investors awaited comments from Bank of Japan Governor Masaaki Shirakawa for clues about the central bank's future policy path.

JGBs jumped on Friday as investors rushed to buy paper at higher yield levels after putting a poor 10-year debt sale behind them. Roiled by a steep sell-off in late April that sent JGB futures tumbling to their biggest one-day drop in five years, market players had been worried about prospects for Thursday's auction of benchmark 10-year bonds.

"Some market players are taking profits following Friday's sharp rally," said a trader at a European trust bank.

"But bond selling is not aggressive and the market could easily be turned around by bargain-hunting that shows investor demand is solid," he said.

The BOJ's Shirakawa is due to deliver a speech at the Japan National Press Center from noon (0300 GMT).

The market will pay attention to his comments as the BOJ late last month dropped its bias towards raising rates and adopted a more neutral stance, saying it will adjust rates flexibly.

Swap contracts on the overnight call rate show investors see a roughly 35 percent chance of the BOJ boosting rates by the end of the year JPONIBOJ=TRDT.

June 10-year futures slid 0.26 point to 136.34 2JGBv1. The lead contract soared 0.80 point on Friday.

The benchmark 10-year yield edged up 1 basis point to 1.565 percent JP10YTN=JBTC, but stayed well off a seven-month high of 1.680 percent struck last week.

The two-year yield was up 1 basis point at 0.735 percent JP2YTN=JBTC. (Editing by Michael Watson)