Nikkei steady as BOJ bond buy report cuts gains

"The JGB story is leading the futures flow in the Nikkei. Some of the CTAs basically are buying JGBs and selling futures," a senior dealer at a foreign bank said, referring to an Asahi Shimbun newspaper report.

CTA stands for commodity trading advisers and refers to hedge funds that bet on futures.

The Asahi newspaper said the BOJ was considering expanding the target of its asset purchase programme to bonds with maturities of up to five years from two years.

The BOJ is due to meet on Friday and market consensus is that it will ease policy further by expanding its 65 trillion yen asset-buying and loan programme by 5 trillion or 10 trillion yen, with the increase to be used to buy government bonds.

The Nikkei was flat at 9,562.80 after trading as high as 9,643.27 earlier in the session as a pledge to raise the size of the International Monetary Fund's debt crisis rescue fund lifted sentiment.

The broader Topix index was down 0.2% at 810.83, while yields on the five-year JGB eased 1.5 basis points to 0.265%, their lowest level since October 2010.

Leading world economies on Friday pledged USD 430 billion in new funding for the IMF, more than doubling its lending power in a bid to protect the global economy from the euro zone debt crisis.

Mitsui Chemicals Inc shed 5.4% after the company said there had been an explosion and fire at a glue factory, killing one employee and injuring some 20 workers and nearby residents.

Sumitomo Chemical Co Ltd rose 0.6%, with a trader saying that it makes a similar product, which is used for making tyres, and may see a revenue increase.

Corporate activity news boosted Yakult Honsha Co Ltd, which jumped 12.1% after Kyodo News said French food firm Danone may increase its stake in the Japanese drink maker to 28% from 20%.