JGB yields track US peers higher, show limited reaction to known BOJ hawk's comments

TOKYO, Sept 12 (Reuters) - Japanese government bond yields rose on Thursday, tracking U.S. Treasury yields, while there was limited reaction to a hawkish Bank of Japan (BOJ) policymaker's remarks on interest rates.

The 10-year JGB yield rose 1 basis point (bp) to 0.86%, retreating from 0.87% scaled earlier in the session.

The five-year yield rose 1.5 bps to 0.505%.

The BOJ must raise rates to at least 1% by late next year, board member Naoki Tamura said, reinforcing the central bank's resolve to persist with steady monetary tightening but marking the first instance of a policymaker publicly specifying a target for short-term borrowing costs.

"He repeated the comments from other BOJ officials and the message was that the BOJ would raise rates and there was not much new in his remarks," said Takayuki Miyajima, senior economist at Sony Financial Group.

The yield on two-year JGBs, which are most sensitive to the BOJ's policy, rose 1 bp to 0.385% before Tamura's remarks and stayed at that level.

Tamura also said the pace at which markets expect the BOJ to hike rates is very slow, and increasing rates at such a pace could further heighten upward inflation risk.

"If other members of the BOJ's board had said something like this, the market would have reacted. But the comments came from Tamura, who would likely say something like this," said Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management.

The 20-year JGB yield rose 0.5 bp to 1.67%, retreating from the session-high of 1.695%.

The finance ministry held an auction for the 20-year bonds, which the market thought was weak, as the lowest price accepted was below expectations.

The auction failed to attract the markets as the level of the yield was low, Inadome said.

The 30-year JGB yield fell 0.5 bp to 2.045%.

The 40-year JGB yield rose 0.5 bp to 2.325%. (Reporting by Junko Fujita; Editing by Savio D'Souza)