(Updates prices, adds Ueda comments following news conference)

By Kevin Buckland

TOKYO, Dec 19 (Reuters) - Japan's 10-year government

bond yield jumped to a 26-year peak on Friday after the Bank of

Japan raised interest rates to a three-decade high and signalled

more policy tightening.

However, the yen quickly reversed an initial knee-jerk rise

and fell as much as 0.7% to 156.71 per U.S. dollar by

0754 GMT, shortly after BOJ Governor Kazuo ‌Ueda's post-meeting

news conference ended.

The Nikkei share average, which finished trading

right before Ueda began speaking, ended the day up 1% at

49,507.21, led by artificial intelligence-linked stocks after

U.S. ​peers rallied overnight following blowout forecasts from

chipmaker Micron. The broader Topix climbed 0.8%

to 3,383.66.

The 10-year JGB yield ‍extended earlier gains, rising as much

as 5.5 basis points to 2.02%, its highest since ⁠August 1999,

following the central bank's ⁠policy announcement. The 2% level

had long served as a symbolic ceiling during Japan's

decades-long battle with deflation.

In a widely expected move, the BOJ raised short-term

interest ‌rates to 0.75% from 0.5% in the first increase since

January. ​The central bank said there was a "high chance" for a

virtuous cycle of rises in wages and inflation to be sustained.

"The biggest takeaway for me so far is that the BOJ has

moved ⁠significantly away from the cautious stance it took

previously," said ‍David Chao, global ​market strategist for Asia

Pacific at Invesco.

At the same time, "the long-held belief that rate hikes

would give the currency a boost has yet to materialise," he

said. "The BOJ's gradual tightening ... coupled with wide

interest rate differentials and ‍falling market volatility, could

continue to keep the JPY weak."

At the press conference, Ueda took his familiar measured,

cautious tone, particularly on the neutral interest rate, which

neither stimulates nor hampers economic growth. Traders had been

keen for comments on the neutral rate to try and judge the

terminal rate for this hiking cycle.

"Our estimate on Japan's neutral rate sits on a pretty wide

range. It's hard to set a pinpoint estimate," Ueda said.

"All I can say is that our future ​policy decision ‍depends on

the information that will become available at the time."

The two-year JGB yield, which tends to be the

most sensitive to monetary policy expectations, climbed as much

as 3 bps to 1.095%, the highest since ​a record peak of 1.1% in

June 2007.

The five-year yield added 5.5 bps to 1.485%, a

level last seen in June 2008.

At the longer end, 20-year yields gained 3.5

bps to a record 2.97%. The 30-year yield climbed

4 bps to 3.415%.

So-called super-long yields began their current climb in

early November as market speculation intensified over the

potential size and shape of a stimulus package under the new

government of Prime Minister Sanae Takaichi.

Initially, signs that the administration would pressure the

BOJ to hold off on rate hikes to support the economy ​kept

shorter-term yields pinned down, but Ueda triggered the biggest

bond market selling for four months in early December when he

sent a strong signal for an imminent rate hike, and hinted he

had Takaichi's consent.

The 10-year yield sat around 1.65% at the end of October.

Takaichi has billed her fiscal policy ‍as "responsible" and

"sustainable", but investors worry about a wave of new debt

issuance.