JGB yields dip as oil prices ease; focus shifts to BOJ commentary

(Recasts paragraph 1, changes headline, adds comments, and updates yield levels)

By Junko Fujita

TOKYO, March 18 (Reuters) - Japanese government bond (JGB) yields extended early declines on Wednesday, as easing oil prices supported bond buying, with focus shifting to the Bank of Japan's commentary later this week on the impact of the Middle East war.

The 10-year JGB yield fell 5.5 basis points (bps) to 2.21%. The two-year yield slipped 2 bps to 1.25%, and the five-year yield fell 4 bps to 1.64%.

Yields move inversely to bond prices.

The Bank of Japan is widely expected to keep interest rates steady on Thursday after its two-day policy meeting, but market views on the future rate path are divided as the Middle East conflict continues to add to domestic price pressures.

"So far traders are seen betting on the fact that the BOJ will prioritise supporting the economy," said Takashi Fujiwara, chief fund manager, fixed income investment division, Resona Asset Management.

"So that they are buying back bonds to close their short positions," he said.

The market also focuses on the stance of hawkish board member Hajime Takata, who proposed unsuccessfully to raise interest rates in January, as a reference for the BOJ's future policy view, Fujiwara said.

JGB yields had been trending higher recently, as the Middle East conflict pushed oil prices up and added pressure on global central banks to address inflation fears.

Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, said BOJ Governor Kazuo Ueda will intentionally be vague about his monetary policy on Thursday.

The yields also fell because the declines in oil prices eased fears of inflation, strategists said.

The 20-year JGB yield fell 5 bps to 3.08%. The 30-year yield slipped 6 bps to 3.49%.

The yield on the 40-year JGB fell 6.5 bps to 3.71%.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips)