(Updates prices, adds results of 40-year JGB auction in

paragraph 3, adds analyst comment in paragraph 4-5)

By Satoshi Sugiyama

TOKYO, March 24 (Reuters) - Japanese government bonds

rose on Tuesday as investors saw signs of an off-ramp in the

Middle East conflict after U.S. President Donald Trump held off

on striking Iran's energy infrastructure.

The benchmark 10-year JGB yield fell 3 basis

points to 2.275%, retreating from Monday's two-month high of

2.305%. Yields move inversely to bond prices. JGBs held onto

gains even after demand at a sale of super-long-term notes

declined.

The finance ministry sold about 400 billion yen ($2.5

billion) of 40-year JGBs, with the bid-to-cover ratio, a measure

of demand, falling to 2.54 from 2.76 at the previous sale in

January.

"The awarded yield itself came in somewhat higher than the

median forecast, so in that sense it was very slightly weaker

than expected," said Naoya Hasegawa, chief bond strategist at

Okasan Securities.

"That said, it was still within the expected range ... I

think the overall assessment would probably be that the result

was fairly uneventful," he said.

The yield on the 40-year JGB, Japan's longest

tenor, fell 1 bp to 3.765% following the auction.

Trump postponed a threat to bomb Iran's power grid because

of what he described as productive talks with unidentified

Iranian officials. Iran, however, denied that it had engaged in

negotiations with the U.S.

Japan's core consumer inflation hit 1.6% in February to

slide below the Bank of Japan's 2% target for the first time in

nearly four years, data showed on Tuesday, complicating its

efforts to justify further interest rate hikes.

The two-year yield, the one most sensitive to

BOJ policy rates, was flat at 1.3%. The five-year yield

fell 1 bp to 1.71%.

The 20-year JGB yield slid 3 bps to 3.135%.

The 30-year yield sank 1 bp to 3.550%.

($1 = 158.7600 yen)

(Reporting by Satoshi Sugiyama; Editing by Alan Barona and

Mrigank Dhaniwala)