TOKYO, May 25 (Reuters) - Japanese government bonds

(JGBs) rallied on Monday, pushing yields further away from

recent multi-decade highs, as signs of progress in resolving the

Middle East conflict tamed inflation fears.

The benchmark 10-year JGB yield, which

touched a 29-year high of 2.8% last week, slid 5 basis points to

2.710%. The 30-year yield, which recently hit a

record 4.2%, dropped 5.5 bps to 3.955%.

Yields move inversely to bond prices.

Japan's dependence on imported energy has made its economy

and inflation picture vulnerable to a surge in oil prices caused

by the nearly three-month conflict. JGBs came under added

pressure last week after reports of a supplementary budget from

Prime Minister Sanae Takaichi fuelled fresh fiscal concerns.

U.S. President Donald Trump said over the weekend that

Washington and Iran had "largely negotiated" a memorandum of

understanding on a peace deal that would reopen the Strait of

Hormuz shipping lane for petroleum. He later said he had told

his representatives not to rush into any deal.

"Market participants are really unsure about Prime Minister

Takaichi's commitment to maintain fiscal discipline," said

Yunosuke Ikeda, the head of macro research at Nomura Securities.

"Many investors say it's not the right timing to buy

Japanese bonds, even though they believe rates are attractive

and that they won't climb much higher from here," he added.

"Prime Minister Takaichi is well aware of the market's

concerns, and I think there will be positive surprises for

investors in the next two months."

The two-year yield, which is most sensitive to

Bank of Japan policy rates, was not yet traded. The five-year

JGB yield eased 3 bps to 1.970%.