TOKYO, May 2 (Reuters) - Yields on Japan's shorter-ended

bonds fell on Friday amid strong investor demand for these

notes, on expectations that the Bank of Japan will not raise

rates soon.

The BOJ on Thursday kept interest rates steady and sharply cut

its growth forecasts, suggesting uncertainty surrounding U.S.

tariffs and the hit to exports could keep policy in a holding

pattern for some time.

The two-year JGB yield and the five-year yield

both fell 1.5 basis points (bps) each to 0.61% and

0.82%, respectively.

The 10-year JGB yield fell 1 bp to 1.26%.

Prices of those bonds rose sharply, and the corresponding

yields fell, after the BOJ announced its cautious stance on

Thursday. The rally continued on Friday.

"If we take the BOJ's statement at face value, it means that

the BOJ paused the rate hike cycle," said Naoya Hasegawa, chief

bond strategist at Okasan Securities.

"But the cycle may resume again. Depending on the outcome of

trade talks, the BOJ may raise its outlook," he said.

Japan's top economic negotiator, Ryosei Akazawa, held talks

with his U.S. counterpart, and said he aims to hold the third

round of discussions again this month.

Meanwhile, China's Commerce Ministry said Beijing is

"evaluating" an offer from Washington to hold talks over the

tariffs.

TS Lombard strategists said JGB yields could hover at

current levels as the BOJ stays cautious, with inflation in

Japan unlikely to be sustainable as China's massive

manufacturing surplus could add downward pressure on prices

globally.

"The JGB market could prove a main beneficiary of bond

portfolio flows away from U.S. Treasuries," they said in a

report.