JGB yields track US peers higher, inflation-linked bond auction in focus

TOKYO, Aug 16 (Reuters) - Japanese government bond yields rose on Friday, tracking a jump in U.S. Treasury yields overnight, while caution set in ahead of an auction for inflation-linked bonds.

The 10-year JGB yield rose 4 basis points (bps) to 0.875% and the five-year yield rose 4.5 bps to 0.49%.

U.S. Treasury yields surged on Thursday after strong economic data all but eliminated fears about a hard economic landing and curtailed expectations that an aggressive Federal Reserve easing was coming next month.

Strategists forecast a somewhat weak outcome from the auction of 10-year inflation-linked bonds later in the day.

"The market is struggling to find the appropriate level for the break-even inflation rate (BEI) after its volatile move," said Naoya Hasegawa, chief bond strategist at Okasan Securities. Inflation-linked bonds are valued through the break-even inflation rate, which measures the gap in yields between the so-called "linkers" and JGBs.

The BEI for 10-year inflation-linked bonds fell to as low as 0.929% on Aug. 5, when the Nikkei fell the most in nearly 40 years, from 1.662% in late July. It was last at 1.337%.

The market is also monitoring the impact of a recent recovery in the yen, as a stronger yen lowers import costs and puts less pressure on inflation, Hasegawa said.

The yen sank to a 38-year low against the U.S. dollar last month.

The two-year JGB yield rose 4 bps to 0.355%.

The 30-year JGB yield rose 2 bps to 2.040%.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)