(Adds BOJ's rate hike expectations in paragraph 6, updates

yield levels)

TOKYO, Aug 7 (Reuters) - Japanese government bond yields

fell on Wednesday as expectations for the Bank of Japan's rate

hike receded after dovish comments from its influential deputy

governor.

BOJ's Shinichi Uchida said on Wednesday the central bank

will not hike interest rates when markets are unstable, playing

down the chance of a near-term hike in borrowing costs.

The two-year JGB yield, the most sensitive to

the BOJ's policy rate, fell 2 bps to 0.265%. The five-year JGB

yield fell 1.5 basis points to 0.41%.

"Uchida's remarks eased the hawkish image of the BOJ. He

clarified that the BOJ is not in a hurry to raise the rates as

the market expected," said Naoya Hasegawa, chief bond strategist

at Okasan Securities.

After the BOJ unexpectedly raised its policy rate to 0.25%

last week, the market turned cautious about the rate hike pace,

driving expectations that the policy rate could be raised to

0.5% this year and to 0.75% by next year.

Markets reacted to Uchida's comments by paring the

probability of a rate rise in October to just 25%..

Futures contracts pegged to the BOJ's overnight call rate

expiring in March indicates the policy

rate to be at 0.32%.

The 10-year JGB yield fell 1 basis point (bp)

to 0.8%, after hitting 0.905% earlier in the session.

The 30-year JGB yield surged 8.3 bps to

2.185%, ahead of an auction for the bonds with the same maturity

on Thursday.

"The market is cautious about the outcome after the weak

auction of 10-year bonds on Tuesday," said Miki Den, senior

Japan rate strategist at SMBC Nikko Securities

The 40-year JGB yield rose 10.5 bps to

2.440%.

The 20-year JGB yield rose 3 bps to 1.735%.