JGB yields climb as investors assess inflation risks from Iran war

TOKYO, March 5 (Reuters) - Japanese government bond (JGB) yields rose on Thursday as investors assessed the potential risk of a pickup in inflation and the outlook for interest rate hikes after the widening Middle East conflict pushed oil prices sharply higher.

The 30-year yield JP30YTN=JBTC added 4.5 basis points (bps) to 3.395%, while the benchmark 10-year JGB yield JP10YTN=JBTC rose 3.5 bps to 2.145%. Yields move inversely to bond prices.

"The situation in the Middle East could become a factor prompting bond selling," Miki Den, senior Japan rate strategist at SMBC Nikko Securities, said in a note.

"However, given the relatively attractive valuations in the super-long end and tighter supply-demand conditions, there is likely limited room for yields to rise."

The Japanese finance ministry is expected to auction about 700 billion yen ($4.46 billion) of 30-year bonds later in the day.

The 20-year JGB yield JP20YTN=JBTC climbed 4 bps to 3.000%. The five-year yield JP5YTN=JBTC gained 2.5 bps to 1.600%.

Other JGB tenors saw little activity in morning trading, with the yield on the 40-year JGB JP40YTN=JBTC, Japan's longest tenor, was at 3.57%.

The two-year yield JP2YTN=JBTC, the one most sensitive to Bank of Japan policy rates, was unchanged at 1.23%.

Shorter-dated JGB yields fell on Wednesday as investors scaled back expectations for an early rate hike in the wake of U.S. and Israeli military actions against Iran.

($1 = 157.0300 yen)