TOKYO, June 14 (Reuters) - Japan's Nikkei share average rallied on Friday after the Bank of Japan opted to leave policy settings unchanged, signalling a decision on paring bond purchases would come next month.

The Nikkei was 0.4% higher at 38,872.21 as of 0334 GMT, a few minutes after reopening following the midday recess. It had ended the morning session flat, with the BOJ's announcement coming during the break.

The broader Topix extended morning gains to be up 0.5%. However, the Topix banking index dropped as much as 1%, reversing earlier gains.

Investors began the day anxious to find out the fate of the central bank's massive 6 trillion yen monthly bond-buying programme, following reports from Reuters and other media that the BOJ could decide to trim purchases by about 1 trillion yen.

But while the BOJ said it would trim buying "to ensure that long-term interest rates would be formed freely in financial markets", the statement added the change would occur at the July meeting after discussions with market participants.

Focus now turns to BOJ Governor Kazuo Ueda's news conference, scheduled for 0630 GMT.

Investors will also be on the lookout for hints for a July interest rate increase, following the first hike since 2007 in March.

Value shares continued to outperform in the Tokyo afternoon, with the Topix's value share sub-index up 0.9%, compared with a 0.6% increase in growth stocks.

Shipping remained by far the best performer among the Tokyo Stock Exchange's 33 industry groups, rising 3.7%.

Some chip- and artificial intelligence-related shares outperformed, following a rally by U.S. peers overnight.

AI-focused startup investor SoftBank Group extended earlier gains to be up 4.23% and remained the biggest points gainer on the Nikkei. Chip-testing equipment giant Tokyo Electron added 0.8%. ($1 = 157.3100 yen) (Reporting by Kevin Buckland; Editing by Subhranshu Sahu and Sohini Goswami)