Japan bond futures off lows as BOJ keeps rates steady

(Updates after BOJ)

TOKYO, April 26 (Reuters) - Japan's government bond futures fell as did the yen on Friday after the Bank of Japan kept its short-term rates steady while highlighting broadening inflationary pressures and sticking to its commitment to keep buying government bonds.

Benchmark 10-year JGB futures fell 0.19 yen to 143.96, but were off the day's lows. Ten-year interest rate swaps were at 1%, off their highs too, while the cash bond market was in recess.

Ahead of the BOJ announcement, the 10-year government bond yield jumped to a more than five-month high, even as traders anticipated the Bank of Japan (BOJ) will keep rate settings unchanged.

The 10-year JGB yield rose 4 basis points (bps) to 0.93%, its highest since Nov. 3, and was last at 0.925%.

The two-year JGB yield, which is highly sensitive to the BOJ's policy, rose 1.5 bps to 0.315%, its highest since July 2009.

The BOJ maintained its short-term interest rate target at a range of 0-0.1%, which was set just a month ago when it made a historical exit from its massive stimulus programme.

The central bank said it will keep buying government bonds based on guidance decided in March, when it pledged to buy roughly 6 trillion yen ($38.45 billion) per month.

"JGB market had quickly priced in the reduction in JGB purchases ahead of the BOJ announcement based on media reports," said Norihiro Yamaguchi, senior Japan economist at Oxford Economics.

"Today’s decision to keep the purchase pace unchanged could calm the market, but the outlook for QT (quantitative tightening) will remain one of the key themes in the JGB market this year."

Traders are focused on signals BOJ Governor Kazuo Ueda might send at a post-meeting press conference on the yen, which has hit successive 34-year lows in the past month and is now on the weaker side of 155 per dollar.

While the BOJ's mandate does not include currency management, a weak yen complicates its inflation calculation, and some investors suspect Governor Kazuo Ueda might sound hawkish or the BOJ may hint at cutting the huge amounts of bonds it regularly buys.

The weak yen and rising oil prices have raised inflation expectations, with the break-even inflation rate, or the gap in the yields between the 10-year inflation-linked bonds and the 10-year JGBs, hitting record highs this week.

The BOJ made a historic shift out of negative interest rates in March but the yen's low yields and wide gap with U.S. rates have kept it under pressure. Ten-year yields have roughly doubled this year, but are still a few basis points short of the 1% cap the BOJ used as reference rate until March.

(Reporting by Junko Fujita and Brigid Riley; Editing by Vidya Ranganathan and Janane Venkatraman)