TOKYO, April 3 (Reuters) - Benchmark Japanese government

bond (JGB) yields touched a near three-decade high on Friday as

the Middle East war neared its fifth week, escalating concerns

about inflation and economic slowdown.

The benchmark 10-year JGB yield reached

2.395%, the highest since February 1999, before edging 0.5 basis

point (bp) lower to 2.385%. The two-year yield,

the one most sensitive to Bank of Japan policy rates, was at

1.385%, a level not seen since May 1995. Yields move inversely

to bond prices.

In a highly anticipated speech that aired during Asian

trading hours on Thursday, U.S. President Donald Trump repeated

threats against Iran's civilian power plants and gave no clear

timeline for ending hostilities. Since it began with a joint

U.S.-Israeli aerial assault on February 28, the war continues to

spread chaos across the region, driving prices for petroleum

products sharply higher.

Japan's economy remains exposed to spikes in crude oil

prices due to its reliance on imported energy. Inflationary

risks erode the real value of fixed bond payments and increase

pressure on the central bank to tighten monetary policy in order

to contain prices.

"There is a possibility that interest rates will be pushed

lower to some extent by dip-buying," Ataru Okumura, a senior

strategist at SMBC Nikko Securities, said in a note.

"There is also a risk of a bear steepening due to

expectations of accelerating inflation, so it is unlikely that

interest rates will decline significantly."

The 20-year JGB yield climbed 2.5 bps to

3.290%, while the 30-year yield added 2 bps to

3.7%.

"If the government adopts a more expansionary fiscal stance

as the war in Iran drags on, it could have a significant impact

on ultra-long-term interest rates," Noriatsu Tanji, chief bond

strategist at Mizuho Securities, said in a note.

"In particular, as mentioned above, if supply constraints

lead to large-scale restrictions on economic activity, pressure

for fiscal expansion is likely to intensify."

(Reporting by Rocky Swift in Tokyo; Editing by Subhranshu Sahu)