TREASURIES-US yields climb after Bank of Japan rate increase

*

BOJ rate hike ends decades of monetary support

*

Fed policymakers divided on rate cuts amid inflation concerns

*

Upcoming Treasury auctions total $183 billion in debt

(Updated in New York afternoon time)

By Karen Brettell

NEW YORK, Dec 19 (Reuters) - U.S. Treasury yields rose in line with global bond yields on Friday after the Bank of Japan raised interest rates, while investors continued to evaluate delayed ?economic releases and the direction of Federal Reserve policy. The BOJ raised interest rates to levels unseen in 30 years, taking another landmark step in ?ending decades of huge monetary support and near-zero borrowing costs.

"The rate hike in Japan and some ?of the communication there perhaps sparked some of the global developed government bond market ?weakness," said Michael Lorizio, ?head of U.S. rates and mortgage trading at Manulife Investment Management.

For the most part, however, traders are focused on how soon and ?how many times the Fed will cut rates next ?year as the U.S. labor market weakens.

Fed policymakers are divided over whether to continue easing, with some officials concerned about sticky inflation. Data on Thursday showed that inflation was ?well below economists' forecasts in November, while other data ?this week showed the ?unemployment rate unexpectedly rose during the month.

Investors have been hesitant to read too much into the data due to distortions and incomplete information as a result of the federal government's ?43-day shutdown.

"Even with that being considered, it reinforces that there's very limited room for material upside surprises in measured inflation right now," said Lorizio.

"If the labor market continues on its current trajectory of the unemployment rate going up 1/10 every month, I think maybe the room for further cuts into next year is a little bit underpriced," Lorizio added. Fed funds futures traders are pricing in only a 22% chance ?of a cut ?at the Fed's January 27-28 meeting, and 60% odds of a cut in March. New York Fed President John Williams said on Friday that he did not see any imminent need ?to follow last week's interest rate cut with another easing.

The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 2.6 basis points on the day at 3.486%. The yield on benchmark U.S. 10-year notes rose 3.5 basis points to 4.151%. The yield curve between two- and 10-year yields steepened by around a half a basis point to 66.4 basis points.

Trading volumes are expected to decline heading into next Thursday's Christmas Day holiday.

Data on ?Friday showed that U.S. existing home sales

rose marginally

in November as economic uncertainty and still-elevated mortgage rates curbed demand.

The Treasury will sell $183 billion in short- and intermediate-dated coupon-bearing debt next week.

This will include $69 billion in two-year notes on Monday, $70 billion in five-year notes ?on Tuesday and $44 billion in seven-year notes on Wednesday.

(Reporting by Karen Brettell; Editing by Alexander Smith and Nick Zieminski)