TOKYO, Sept 4 (Reuters) -

Japanese government bond yields declined on Wednesday as

U.S. Treasury yields fell, while investors weighed the outlook

for the world's largest economy ahead of Friday's non-farm

payrolls.

The benchmark 10-year JGB yield was down 3.5

basis points at 0.885% as of 0430 GMT, reversing its rise over

the previous two days, while 10-year JGB futures rose

0.38 yen to 144.79 yen.

U.S. Treasury yields fell on Tuesday after data signalled

activity in the manufacturing sector remains soft. The 10-year

Treasury yield was at 3.83% in Asia trading hours on

Wednesday.

The Institute for Supply Management said its manufacturing

PMI rose to 47.2 in August, up from an eight-month low of 46.8

in July. But the reading remained below 50 for the fifth

straight month, indicating a contraction.

Global markets remain sensitive to U.S. growth indicators,

after a weak jobs report last month sparked market stress over

imminent recession risks.

A U.S. recession would have global impact, leaving investors

waiting for more clarity on its outlook.

"Given the current uncertainty about the future, it's

unclear whether Japan's additional interest rate hikes will

proceed smoothly," said Makoto Suzuki, senior bond strategist at

Okasan Securities.

Confidence that the U.S. economy is heading for a soft

landing could generate more speculation in the bond market about

the Bank of Japan's next rate hike, which most economists and

market players believe will come in either December or January,

he said.

For now though, it's hard to trade in either direction,

Suzuki said.

The biggest test this week will come on Friday when U.S.

non-farm payrolls for August will be released.

Elsewhere on the curve, the 20-year JGB yield

and 30-year JGB yield both slid 3.5 bps to 1.69%

and 2.06%, respectively.

On the short end, the two-year JGB yield

ticked down 1 bps to 0.375%, while the five-year yield

fell 2.5 bps to 0.505%.

(Reporting by Brigid Riley; Editing by Varun H K)