(Updates at 0720 GMT)

TOKYO, Aug 16 (Reuters) - Japanese government bond

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

overnight, while sentiment was helped after a

better-than-expected outcome of an auction of inflation-linked

bonds.

The 10-year JGB yield rose 3.5 basis points

(bps) to 0.87% and the five-year yield rose 4.5

bps to 0.49%.

U.S. Treasury yields surged on Thursday after strong

economic data all but eliminated fears about a hard economic

landing and curtailed expectations that an aggressive Federal

Reserve easing was coming next month.

The auction of the 10-year inflation-linked bonds turned out

to be modestly firm, with the lowest price exceeding the

forecast.

The auction received bids worth 2.96 times the amount sold,

lower than a ratio of 4.27 times at the previous auction.

"Overall we can conclude that the outcome was modestly

firm," said Takahiro Ootsuka, senior fixed income strategist at

Mitsubishi UFJ Morgan Stanley.

Inflation-linked bonds are valued through the break-even

inflation rate (BEI), which measures the gap in yields between

the so-called "linkers" and JGBs.

The BEI for 10-year inflation-linked bonds

fell to as low as 0.929% on Aug. 5, when the Nikkei fell

the most in nearly 40 years, from 1.662% in late July. It was

last at 1.332%.

Ootsuka said the outcome was better than expectations as

some investors thought the BEI's current level reasonable.

The market is monitoring the impact of a recent recovery in

the yen on inflation, as a stronger yen lowers imports, said

Naoya Hasegawa, chief bond strategist at Okasan Securities.

The yen sank to a 38-year low against the U.S.

dollar last month but surged to a seven-month high of per dollar

last week.

The two-year JGB yield rose 3.5 bps to 0.35%.

The 30-year JGB yield rose 2 bps to 2.040%.

The 40-year JGB yield rose 2.5 bps to 2.28%.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu and

Mrigank Dhaniwala)