* BOJ easing has not changed investor inflation expectations
* BOJ sees inflation reaching 2 pct in 2015; market does not
* Impact of weaker yen seen wearing off next April
* Japan investors keep buying yen bonds, no major asset allocation seen
* Banks starting to rebuild bond portfolio
By Hideyuki Sano
TOKYO, Nov 6 (Reuters) - Six months after the Bank of Japan adopted an unprecedented scale of monetary stimulus to end stubborn deflation, the shock therapy has not yet changed Japanese investors' own stubborn mindset that the country is stuck in a deflationary trap.
Many Japanese banks and life insurers have piled into Japanese government bonds, sending the benchmark 10-year yield below 0.6 percent last week, even as the country's consumer inflation steadily rises.
In an economic outlook report published last week, the BOJ stuck to its forecast that core inflation would rise near 2 percent in 2015/16, excluding the impact from a sales tax increase.
"More than 90 percent of market players think that is not going to happen," said Hidenori Suezawa, analyst at SMBC Nikko Securities.
To be sure, Japan's inflation has risen in line with the central bank's projection so far since April, when the BOJ announced a two-year asset purchase plan to double its holding of bonds and some other assets.
Core inflation was at a five-year high of 0.8 percent in August and stood at 0.7 percent in September, well above March when core prices fell 0.5 percent.
But the uptick was driven mostly by rising import prices following a sharp fall in the yen in November-May.
One problem for Bank of Japan Governor Haruhiko Kuroda, investors say, is that a boost from a weaker yen will wear off around April.
Just to maintain the current level of inflation will likely require another yen fall of the same magnitude, meaning the yen will need to fall to around 120 per dollar from around 100 now.
In the latest Reuters poll, however, the mean forecast for the yen a year ahead is 107, with even the most bearish response at 117.
Domestic consumption is not seen strong enough to boost prices as wages are still stagnant - something fund managers at Japanese firms can tell even without looking at government data.
The upshot is most Japanese institutional investors are still ready to buy JGBs even as the 10-year yield falls below inflation.
Most of Japan's biggest life insurers said they increased domestic bond holdings in April-September and that they plan to increase them further.
There was no major reallocation of funds despite speculation the BOJ's massive easing could spark "portfolio rebalancing" to foreign bonds by Japanese investors.
Japan's biggest banks, which initially sold a large amount of bonds on inflation fears, have started rebuilding their bond portfolio.
"Bank lending is not growing that much so they have cash at hand. In the past, banks were selling into the BOJ's buying. Now both of them are buying, that's why JGB yields are falling," said Tadashi Matsukawa, head of fixed income investment at PineBridge Investments in Tokyo.
BOJ data shows city banks - the country's top lenders - increased JGB holdings in August for the first time since March to 85.44 trillion yen ($867 billion) from 85.38 trillion yen in July, after having slashed them by 22 trillion yen since March.
In a sign banks are becoming less eager to sell JGBs, the BOJ's latest buying in JGBs with 5 to 10 years to maturity drew the smallest offers in recent months.
The BOJ's offer on Thursday to buy 400 billion yen of JGBs in those maturities attracted offers of 939.7 billion yen, the first time offers did not reach one trillion yen.