(Updates yields, adds milestones and analyst comment)

By Satoshi Sugiyama

TOKYO, March 27 (Reuters) - Japanese government bond

yields rose across the curve on Friday, as recent hawkish

central bank signals and the Middle East war heightened

inflation concerns and prompted investors to reprice the path of

rate hikes.

The two-year yield, the tenor most sensitive

to Bank of Japan policy rates, rose 4.5 basis points to 1.38%,

the highest since May 1995. Its five-day increase was the

largest since the week ended October 10, 2008.

The five-year yield rose 8.0 bps to a record

1.820%, while the benchmark 10-year JGB yield

increased 11 bps to 2.380%, a two-month high. Yields move

inversely to bond prices.

The BOJ said on Thursday its index of core consumer prices

rose 2.2% in February, releasing the gauge for the first time in

what analysts say is an effort to show underlying inflation is

setting the stage for further rate hikes.

"The central bank probably wanted to send a message to the

market that it is ready to raise rates when needed regardless of

the market condition," said Miki Den, a senior Japan rate

strategist at SMBC Nikko Securities.

The BOJ's revised output gap data, also released on

Thursday, showed demand exceeded supply capacity for a 15th

straight quarter, pointing to a greater likelihood of rising

prices.

With no end in sight for the war in Iran and its impact on

imported energy prices, the BOJ data suggests inflationary

pressures may persist, prompting investors to be more cautious

on bonds, said Ryutaro Kimura, senior fixed-income strategist at

AXA Investment Managers.

The 20-year JGB yield climbed 15.5 bps to

3.275%, the highest since January. The 30-year yield

added 19 bps to 3.710%. The yield on the 40-year

JGB, Japan's longest tenor, rose 21 bps to

3.915%.

Super-long JGB yields are facing particularly upward

pressure because demand is decreasing among life insurers and

other traditional buyers, and there are concerns that the

government may discourage rate hikes by the BOJ, Kimura said.

"The market may revise up expectations for the terminal rate

and for inflation further out, which could explain why the yield

curve reaction in Japan is bear steepening, unlike in the U.S.

and Europe," he said.

(Reporting by Satoshi Sugiyama and Junko Fujita; Editing by

Sumana Nandy and Subhranshu Sahu)