JGB yields rise as strong Tokyo inflation revives BOJ rate hike expectations

TOKYO, April 25 (Reuters) - Japanese government bond (JGB) yields rose across the curve on Friday after Tokyo's inflation hit a two-year high, reviving bets for the Bank of Japan's interest rate hikes.

The 10-year JGB yield JP10YTN=JBTC rose 4 basis points (bps) to 1.35%, its highest since April 15.

The policy-sensitive two-year JGB yield JP2YTN=JBTC rose 1.5 bps to 0.69%.

"Investors started pricing in the BOJ's interest hike in the future even as the impact of U.S. tariffs on the economy remains uncertain," said Naoya Hasegawa, chief bond strategist at Okasan Securities.

"The stronger CPI data reminded investors that the BOJ would raise interest rates eventually if the risks of the U.S. tariff eases," Hasegawa said.

Core inflation in Japan's capital accelerated to a two-year high in April on surging food costs, making the central bank's quest to fully exit ultra-easy policy a delicate balancing act of managing risks between higher U.S. tariffs and rising prices.

Tokyo's inflation data, considered a leading indicator of nationwide trends, comes ahead of the BOJ policy meeting from April 30-May 1, where the central bank is widely expected to keep short-term rates steady at 0.5%.

The market also became risk-on after the White House softened its stance on China, prompting investors to buy equities and sell bonds, Hasegawa said.

The five-year yield JP5YTN=JBTC rose 3 bps to 0.905%.

The 20-year JGB yield JP20YTN=JBTC rose 3 bps to 2.225%.

The 30-year JGB yield JP30YTN=JBTC rose 2 bps to 2.710%.