JGB yields rise on BOJ's rate-hike bets

By Junko Fujita

TOKYO, Jan 27 (Reuters) - Japanese government bond yields rose on Tuesday as the market continued to bet on an early interest rate hike from the Bank of Japan even as the yen gained ground in recent sessions.

The benchmark 10-year JGB yield JP10YTN=JBTC rose 4 basis points (bps) to 2.275%. The five-year JGB yield JP5YTN=JBTC rose 2.5 bps to 1.710%.

The two-year yield JP2YTN=JBTC rose 1 bp to 1.275%.

The yen spiked on Friday and climbed to a more than two-month high overnight, as speculation grew over coordinated currency intervention by U.S. authorities following remarks from Japan's prime minister and a leading currency diplomat. FRX/

"The expectation for the central bank's interest rate hike did not recede even as the yen strengthened," said Yuki Kimura, a bond strategist at Okasan Securities.

A stronger yen tends to mute pressure on the BOJ to tighten the monetary policy. The weaker yen typically raises import costs, driving inflation.

Yields also rose as investors remained cautious about the outcome of the auction for 40-year bonds.

"The auction may see a weak result as there are many uncertainties, such as the election outcome and the fate of tax on food items," said Kimura.

Japanese political parties kicked off an election campaign on Tuesday after Prime Minister Sanae Takaichi called for a national election on February 8.

The JGB yields spiked last week after Takaichi pledged to abolish sales taxes on food for two years. Other opposition parties also promised to halt the taxes or abolish them permanently.

The 20-year JGB yield JP20YTN=JBTC climbed 2.5 bps to 3.19%. The 30-year yield JP30YTN=JBTC added 3 bps to 3.65%.