JGBs retreat on profit taking despite Nikkei tumble
* JGBs fall on profit taking after 10-yr yield hits 6-mth low
* Futures slide leads thin market lower
* Wait-and-see mood prevails before BOJ rate decision
By Shinichi Saoshiro
TOKYO, Oct 7 (Reuters) - Japanese government bonds retreated on Tuesday as investors locked in profits after yields declined to six-month lows on the back of Tokyo shares tumbling to a five-year low.
Futures lead the drop, with foreign market players quickly stepping in to sell on initial gains after the Nikkei stock average .N225 shed nearly 5 percent to fall below 10,000 for the first time since December 2003.
Market players are now looking ahead to the Bank of Japan's policy decision after a two-day meeting later in the day, with some speculating that the central bank could cut its Lombard rate for direct bank lending to help ease money market strains. [ID:nT29345]
Bank of Japan Governor Masaaki Shirakawa is scheduled to hold a news conference after the meeting, and the market is waiting to see if he will touch on the subject of monetary easing even if the BOJ decides to stand pat on rates this time. [ID:nT29345]
Expectations that the BOJ could cut interest rates in the coming months as part of a coordinated effort with other central banks to deal with the global financial crisis have also supported JBGs.
Analysts said that a variety fo Japanese investors, such as pension funds, had already taken care of their buying needs during the market's surge the previous day.
"Investors appear to be on the sidelines after buying aggressively yesterday, the sizeable decline in the stock market notwithstanding," said Atsushi Ito, fixed-income strategist at Morgan Stanley.
December futures fell 0.46 point to 138.09 2JGBv1 after sliding as far as 137.70.
Trade remains volatile because many market players are shying away from the market give the sharp sell-off in stocks and freeze in money markets.
The benchmark 10-year yield climbed 3.5 basis points to 1.405 percent JP10YTN=JBTC, up from the six-month trough of 1.355 percent hit at the start of trade.
The five-year yield JP5YTN=JBTC rose 6.5 basis points to 0.965 percent after having fallen.
(Editing by Sophie Hardach)
