JGBs narrowly mixed, market eyes U.S. Treasuries

TOKYO, Jan 31 (Reuters) - Japanese government bonds were narrowly mixed on Wednesday as investors awaited U.S. economic events for clues to the future direction of U.S. interest rates.

Trade was quiet as market participants eyed key U.S. data, such as the advance estimate of October-December growth and a statement from the U.S. Federal Reserve's two-day policy meeting ending later in the day, traders said.

The Fed is widely expected to leave the funds rate at 5.25 percent at this week's meeting.

Japanese investors were wary that a further rise in U.S. Treasury yields from five-month highs could prompt investors to cut back their holdings of JGBs.

"JGBs will be impacted if U.S. interest rates rise further, with the benchmark U.S. 10-year yield trying 5 percent," said Chotaro Morita, chief JGB strategist at Deutsche Securities.

JGB prices were underpinned, however, as some soft data in the past one week has reinforced doubts about a Bank of Japan rate rise in February, traders said.

Data on Tuesday showed that overall household spending fell more than expected in December from a year earlier, helping expectations that the pace of rate tightening by the BOJ will be slower than previously thought.

For more clues about the possibility of a February rate rise, investors eyed the government's report on December overtime pay at 0130 GMT, another piece of consumption-related data, traders said.

After leaving the overnight call rate unchanged at 0.25 percent on Jan. 18, the BOJ said it needed to examine more data and remained concerned about very moderate price rises and weak consumption.

March 10-year JGB futures edged down 0.02 point to 134.39 2JGBv1. The lead contract had hit a one-month high of 134.96 on Friday after Japan's consumer price index came in softer than expected, stirring doubts about whether the BOJ would raise interest rates at its Feb. 20-21 meeting.

The benchmark 10-year JGB yield was at 1.705 percent JP10YTN=JBTC, unchanged on the day.