Japan stocks rise, bonds mixed as BOJ policy decision looms

(Updates prices, adds analyst quote in paragraphs 11-12 and details)

By Kevin Buckland

TOKYO, Jan 23 (Reuters) - Japanese stocks edged higher on Friday as investors took early cues from Wall Street ahead of a Bank of Japan policy decision due later in the day.

Japanese government bonds were mixed, while the yen drifted lower with the central bank widely expected ?to hold interest rates steady, putting the focus on its quarterly economic outlook report and BOJ Governor Kazuo Ueda's post-meeting news conference for any ?hints on the timing of further rate hikes.

The Nikkei nudged 0.2% higher to 53,815.35 by ?0120 GMT. The broader Topix climbed 0.7% to 3,642.35.

Overnight, easing tensions surrounding ?the United States' bid to ?assert control over Greenland helped Wall Street's S&P 500 advance 0.5%, and 10-year Treasury yields retreated from five-month peaks as investors who had ?previously shunned U.S. assets returned.

Longer-term JGB yields - which have ?been a particular market focus after expectations of additional fiscal stimulus pushed them to record highs this week - were mixed, with 30-year yields adding 1 basis point (bp) to ?3.675% but 40-year yields shedding 2 bps to 3.975%.

On ?Tuesday, the ?30- and 40-year yields spiked to all-time peaks of 3.88% and 4.215%, respectively. Yields rise when bond prices fall.

Two-, five- and 10-year JGB yields were flat on Friday.

The yen slipped ?0.1% to 158.535 per U.S. dollar, continuing its very gentle drift lower over the past four sessions.

Prime Minister Sanae Takaichi will dissolve parliament later in the day to make way for snap elections on February 8, in a gamble that she can capitalize on her personal popularity to expand her government's slim majority.

She has pledged to strengthen her expansionary fiscal policy and suspend the 8% sales tax on ?food, stoking ?worries about additional debt issuance.

"It would be hard for the BOJ to alter policy before the election," said Wataru Akiyama, a strategist at Nomura Securities.

"The market's focus today will be ?around whether the BOJ adopts a hawkish tone."

The BOJ does not announce its policy decision at a fixed time, but it is expected between 0330 and 0500 GMT. Ueda's press conference is scheduled for 0630 GMT.

With the central bank raising rates only last month to a three-decade high of 0.75%, no change is likely on Friday.

However, the BOJ is expected to maintain its pledge to keep raising rates if economic and price developments move in ?line with its projections.

In the quarterly outlook report, the BOJ will likely raise its growth forecast for the fiscal year beginning in April, and maintain its view the economy will remain on course for a moderate recovery, sources have told Reuters.

Swaps markets currently ?anticipate two quarter-point hikes this year, according to LSEG calculations.

(Reporting by Kevin Buckland; Editing by Sherry Jacob-Phillips)