JGB yields rise after US jobless claims ease

TOKYO, Aug 9 (Reuters) - Japan's government bond (JGB) yields rose on Friday, tracking a jump in U.S. Treasury yields overnight after a bigger-than-expected drop in U.S. unemployment claims eased fears of an imminent recession.

The 10-year JGB yield rose 2.5 basis points (bps) to 0.855%.

The two-year JGB yield rose 3.5 bps to 0.3% and the five-year yield also climbed 3.5 bps to 0.435%.

Despite the rise, strategists say the current level of yields on shorter maturities is too low given the Bank of Japan's possible rate hike.

"The BOJ's stance that it would raise interest rates if data shows economic conditions are on track has not been changed, and the market has witnessed some data that support the policy shift," said Shinji Ebihara, chief fixed income strategist at Tokio Marine Asset Management.

The two-year overnight index swap rate was around 0.375%, down from a recent high of 0.5475% on Aug. 1.

After the BOJ unexpectedly raised its policy rate last week, the market turned cautious about the rate hike pace, triggering a huge selloff of equities and unwind of yen carry trade.

The fears receded after BOJ's influential deputy governor Shinichi Uchida said the central bank will not hike interest rates when markets are unstable.

"But a close look at the speech suggests the BOJ will raise rates if the economy grows in line with expectations. I would not be surprised if there is another rate hike this year," Ebihara said.

The market turned nervous again after a summary of the discussion at the bank's July 30-31 meeting showed policymakers focussed on a series of rate hikes to keep inflation from overshooting.

The 30-year JGB yield fell 2.5 bps to 2.060% after a smooth auction of the bonds with the same maturity on Thursday.

(Reporting by Junko Fujita; Editing by Mrigank Dhaniwala)