Japan's Nikkei pares declines, yen weakens as BOJ forgoes rate hike

(Updates prices after BOJ decision)

By Kevin Buckland

TOKYO, Dec 19 (Reuters) - Japan's Nikkei share average pared early declines on Thursday as the yen weakened following the Bank of Japan's decision to refrain from raising interest rates.

The yen fell despite widely-held market expectations that Japan's central bank would push policy tightening to January or March, and was down about 0.3% at 155.26 per dollar by 0340 GMT.

The Nikkei was trading 0.75% lower at 38,790.14 after finishing the morning session down 0.96%. The broader Topix recovered from a 0.49% decline to last trade about flat.

Japanese government bonds, however, largely shrugged off the rate decision, with benchmark 10-year futures last down 0.30 yen at 142.08 yen, versus a 0.28 yen decline at the end of morning trading. Cash 10-year JGBs had yet to trade in the afternoon session.

The BOJ announcement came during the trading recess. Investors now turn their attention to BOJ Governor Kazuo Ueda's press conference, expected at 0630 GMT, for clues on the timing of the next hike. Japanese stocks had declined broadly in the morning following an overnight sell-off on Wall Street after the U.S. Federal Reserve's signal of a cautious pace of easing next year, even as it cut the policy rate by a quarter point as expected.

"I would've thought that given the Fed's somewhat hawkish statement, you could argue that that actually kind of helps the BOJ to also provide a bit more of a hawkish guidance ... but that didn't happen," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.

Looking ahead to Governor Ueda's news conference, "if he remains noncommittal about imminent hikes, then I think that would be unabashedly dovish," Tan said.

The Fed's hawkish stance sent U.S. Treasury yields soaring, leading JGB yields to jump at the open as well.

As a result, the interest-rate sensitive real estate sector was the worst-performer on the Nikkei, while financials were the top performers.

Heavyweight chip-sector stocks were another big drag, with Advantest (ADTTF) down 3% and Tokyo Electron (TOELF) losing 1.7%. Shares of artificial intelligence-focused startup investor SoftBank Group tumbled 4.3%. Overnight, shares in U.S. chipmaker Micron Technology (MU) slumped after the company's below-consensus profit and revenue forecast pointed to sluggish global demand.

(Reporting by Kevin Buckland; Editing by Alan Barona, Sherry Jacob-Phillips and Varun H K)