JGBs extend declines after BOJ decision

TOKYO, July 31 (Reuters) - Japan's shorter-dated bonds extended declines on Thursday after the Bank of Japan kept its policy rate unchanged, but offered a hawkish view towards the inflation trend.

The two-year JGB yield JP2YTN=JBTC rose 1.5 basis points (bps) to 0.835%, hitting a day's high, while the five-year yield JP5YTN=JBTC rose 2 bps to 1.11%, before slipping to 1.105%.

Yields move inversely to bond prices.

The BOJ kept short-term interest rates steady at 0.5%, but revised up its inflation forecasts, a sign that the central bank will keep raising rates.

However, the hawkish shift was within market expectations as Tokyo's trade deal with Washington cleared some uncertainty about the economic outlook.

"The BOJ lifted inflation forecast for 2026 a bit, which is neutral or gives some upward pressure on JGB yields," said Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust Asset Management.

Benchmark 10-year JGB futures 2JGBv1 fell as much as 0.2 yen, and was last down 0.11 yen at 137.87. It ended the morning session down 0.12 yen.