TOKYO, Dec 26 (Reuters) - Japanese government bond (JGB)

yields rose on Thursday, tracking rises in U.S. Treasury yields,

while market participants sold bonds to adjust their positions

in year-end trade.

The 10-year JGB yield rose 2 basis points

(bps) to 1.085%. The two-year JGB yield rose 1.5

bps to 0.595% and the five-year yield rose 2.5 bps

to 0.74%.

The benchmark 10-year U.S. Treasury yield

crossed 4.6% in Asia trade, prompting investors to sell JGBs,

said Miki Den, senior Japan rate strategist at SMBC Nikko

Securities.

Market players closed their positions after an auction for

two-year bonds, the last auction of the year, Den said.

Low liquidity in the year-end trade helped the yields to

move widely, said Keisuke Tsuruta, a senior fixed income

strategist at Mitsubishi UFJ Morgan Stanley Securities.

Separately, Reuters reported that the Ministry of Finance

(MOF) is set to raise scheduled sales of Japanese government

bonds (JGB) slightly to 172.3 trillion yen ($1.1 trillion) next

fiscal year from the current year.

Much of the increase in sales will be made in shorter-dated

debt to tap demand from Japanese banks, it said.

"The MOF is under pressure to shorten JGB duration as market

players want to reduce risks for interest rate hikes," said

Tsuruta.

The BOJ eyes raising its policy rate if wages and prices

move as projected and is in the process of reducing its massive

holdings in JGBs.

The 20-year JGB yield rose 1.5 bps to 1.865%

and the 30-year JGB yield rose 1.5 bps to 2.255%.

The 40-year JGB yield was flat at 2.595%.