JGB futures edge up with Treasuries, BOJ debated

TOKYO, Aug 24 (Reuters) Japanese government bond futures edged up on Friday, recovering from a sharp slide the previous day as long-term U.S. Treasuries posted slight gains overnight and Tokyo shares slipped following this week's rebound.

September 10-year futures rose 0.11 point to 135.52, rebounding from a low of 135.10 hit the previous day but well off the 18-month peak of 136.46 struck in Tuesday's evening session.

JGB futures fell back from an 18-month peak hit earlier this week as signs of calm returning to credit markets knocked Treasuries lower and gave a further boost to battered shares.

Some investors also sold bonds after remarks by Bank of Japan Governor Toshihiko Fukui after the central bank kept rates on hold on Thursday were seen as keeping alive the possibility of an interest rate rise in September or October.

Fukui said in his post-meeting news conference there would be no need to change the main scenario for raising rates if there was no major damage from the market volatility and that the BOJ would not be affected by the policies of other central banks.

The BOJ kept its overnight call rate target unchanged 0.5 percent as widely expected, with hawkish board member Atsushi Mizuno dissenting in favour of a rate increase for a second straight meeting.

A Reuters poll of 51 market players after Fukui's news conference showed 18 expect a BOJ hike at one of its two meetings in October, while 14 saw a move coming next month. INT] JGB strategists at Barclays Capital said in a note to clients that the BOJ would likely keep rates on hold at its Sept. 18-19 meeting if the Federal Reserve cut rates at its Sept. 18 meeting, as is now expected.

The BOJ may wait until the early October meeting because it could then ''look at the findings of the latest Tankan report to confirm that any impact on Japanese corporations from the subprime issue is limited'', they said in a note to clients.

Benchmark 10-year yields fell 1.5 basis points to 1.580 percent, while five-year yields edged down half a basis point to 1.180 percent. Two-year yields dipped a basis point to 0.890 percent.

The Nikkei share average dipped 0.4 percent but has rebounded some 6 percent from a one-year low hit a week ago on the mounting troubles in overseas credit markets.

REUTERS AK BST0718