TOKYO, July 26 (Reuters) - Japanese government bond

(JGB) yields fell on Friday, as a decline in U.S. Treasury

yields and strong demand at an auction for two-year JGBs

supported buying, although caution regarding the Bank of Japan's

(BOJ) monetary policy meeting next week reined in the size of

moves.

The benchmark 10-year JGB yield fell 1 basis

point (bp) to 1.055%.

Longer-dated U.S. Treasury yields were mostly lower on

Thursday after a Wednesday tumble in equities helped fuel a

safe-haven bid for bonds.

Meanwhile, an auction for two-year JGBs on Friday garnered a

bid-to-cover ratio of 4.19, its highest since June 2023.

The bid-to-cover is a common measure of demand at auctions,

with a larger number signalling higher demand.

The two-year JGB yield ticked down to rest

flat at 0.39% after the results, having risen to its highest

since May 31 at 0.405% in early trade.

But investors were also careful of the possibility that the

BOJ may raise interest rates for a second time this year at the

conclusion of its July 30-31 meeting, particularly amid a string

of comments from politicians and media reports.

"Statements by key officials and speculative news reports

have fuelled fears the BOJ will also hike interest rates" next

week, Yasunari Ueno, chief market economist at Mizuho

Securities, wrote in a note.

"These concerns have lifted the yen and weighed on stocks

and bonds."

Sources told Reuters that the bank is likely to debate

whether to hike rates next week and unveil a plan to roughly

halve bond purchases in coming years.

Core inflation in Japan's capital accelerated for a third

straight month in July but an index gauging demand-driven price

growth slowed, data showed on Friday.

The five-year yield edged down 0.5 bp to

0.625%.

The 20-year JGB yield slid 1.5 bps to 1.82%,

while the 30-year JGB yield also fell 1.5 bps to

2.145%.

(Reporting by Brigid Riley; Editing by Mrigank Dhaniwala)