Japan's Nikkei flips to losses, yen firms after BOJ decision

By Rocky Swift and Kevin Buckland

TOKYO, Sept 19 (Reuters) - Japan's Nikkei share average flipped to losses on Friday and the yen firmed after the Bank of Japan (BOJ) kept interest rates steady as expected, but in a split decision with two of the nine board members voting for a hike.

The central bank also announced it will begin selling its holdings of exchange-traded funds (ETFs) and real-estate investment trusts, amassed over a decade of massive stimulus.

Japanese government bond futures sank, while the yield on 10-year sovereign debt jumped to a nearly 17-year peak.

"It came as a surprise," Hirofumi Suzuki, chief currency strategist at SMBC, said about the BOJ's decision.

"With the start of ETF sales and two dissenting votes against leaving policy unchanged, i.e., in favour of tightening, the outcome was hawkish despite expectations for a straightforward hold."

The focus now falls on BOJ Governor Kazuo Ueda's news conference at 0630 GMT.

The Nikkei 225 Index .N225 lost 1% to 44,800.40 as of 0410 GMT, not long after the central bank's announcement.

Earlier, it rose as much as 1.2% to a record high of 45,852.75, driven by a surge in chip-sector stocks following an overnight rally in U.S. peers.

The 10-year JGB yield JP10YTN=JBTC added four basis points (bps) to 1.635%, just short of this month's high of 1.64%, a level not seen since July 2008.

Benchmark 10-year JGB futures 2JGBv1 shed 0.4 yen to 136.16 yen.

Bond yields move inversely to prices.

The yen strengthened as much as 0.5% to 147.27 per dollar JPY=EBS, undoing part of the last two sessions' 1% drop.