Japanese government bonds hold steady as markets digest BOJ policy signals

By Rocky Swift

TOKYO, June 4 (Reuters) - Japanese government bond (JGB) yields were varied on Thursday, with the benchmark edging higher while short-end yields extended gains as investors weighed firmer Bank of Japan rate-hike expectations and global inflation concerns.

Here are a few details:

* The yield on the 10-year JGB rose 0.5 basis point (bp) to 2.645%. The two-year yield, the one most sensitive to Bank of Japan policy rates, climbed 1 basis point to 1.410%, marking a two-day streak of gains. Yields move inversely to bond prices.

* JGBs traded in a cautious range as markets digested signals from BOJ Governor Kazuo Ueda, who said on Wednesday the central bank must discuss the pros and cons of raising interest rates if upside inflation risks outweigh downside risks to the economy.

* His comments reinforced expectations that the BOJ will raise its key rate from 0.75% to 1% at its June 15-16 meeting.

* "The speech delivered yesterday by Bank of Japan Governor Ueda contained many important hawkish messages," Ataru Okumura, a senior rate strategist at SMBC Nikko Securities, said in a note. "It is possible that he will raise interest rates at the June meeting while emphasizing more strongly than before the BOJ's intention to continue raising rates beyond that point."

* Inflation concerns hung over global debt markets, with U.S. Treasury yields climbing overnight amid renewed U.S.-Iran hostilities that pushed oil prices higher and revived inflation concerns.

* "Negative factors surrounding ultra-long-term bonds, such as inflation concerns and worries about fiscal expansion, have not been resolved," Keisuke Tsuruta, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, wrote in a note.