TOKYO, Aug 9 (Reuters) - Japan's government bond (JGB)

yields rose on Friday, tracking a jump in U.S. Treasury yields

overnight after a bigger-than-expected drop in U.S. unemployment

claims eased fears of an imminent recession.

The 10-year JGB yield rose 2.5 basis points

(bps) to 0.855%.

The two-year JGB yield rose 3.5 bps to 0.3%

and the five-year yield also climbed 3.5 bps to

0.435%.

Despite the rise, strategists say the current level of

yields on shorter maturities is too low given the Bank of

Japan's possible rate hike.

"The BOJ's stance that it would raise interest rates if data

shows economic conditions are on track has not been changed, and

the market has witnessed some data that support the policy

shift," said Shinji Ebihara, chief fixed income strategist at

Tokio Marine Asset Management.

The two-year overnight index swap rate was

around 0.375%, down from a recent high of 0.5475% on Aug. 1.

After the BOJ unexpectedly raised its policy rate last week,

the market turned cautious about the rate hike pace, triggering

a huge selloff of equities and unwind of yen carry trade.

The fears receded after BOJ's influential deputy governor

Shinichi Uchida said the central bank will not hike interest

rates when markets are unstable.

"But a close look at the speech suggests the BOJ will raise

rates if the economy grows in line with expectations. I would

not be surprised if there is another rate hike this year,"

Ebihara said.

The market turned nervous again after a summary of the

discussion at the bank's July 30-31 meeting showed policymakers

focussed on a series of rate hikes to keep inflation from

overshooting.

The 30-year JGB yield fell 2.5 bps to 2.060%

after a smooth auction of the bonds with the same maturity on

Thursday.