TOKYO, March 25 (Reuters) - Benchmark Japanese bonds

climbed on Wednesday for a second consecutive session as signs

of a potential settlement to the Middle East crisis pushed oil

prices lower and helped ease inflationary concerns.

The 10-year Japanese government bond (JGB) yield

fell 1.5 basis points (bps) to 2.250%. Yields

move inversely to bond prices.

U.S. President Donald Trump said that Washington was making

progress in its efforts to negotiate an end to the nearly

month-long war with Iran.

Like many global markets, the JGB sector has swung between

gains and losses on mixed signals on whether the crisis will

escalate further or move toward de-escalation.

Japan's economy remains highly exposed to spikes in crude

oil prices due to its heavy 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 price growth.

Minutes released on Wednesday from the January meeting of

the Bank of Japan showed that policymakers see a continued need

to raise interest rates, though they have not committed to a

specific pace for future hikes.

The hurdle for accelerated hikes may be high, considering

data that showed easing inflation prior to the war and now the

potential for economic slowdown, according to Miki Den, a senior

Japan rate strategist at SMBC Nikko Securities.

"Even if the current rise in crude oil prices contributes to

a fundamental increase in inflation, the market appears to view

the likelihood of rapid rate hikes as low," Den said in a note.

The 30-year JGB yield sank 2.5 bps to 3.520%.

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

tenor, fell 0.5 bps to 3.755%.

The two-year yield, the one most sensitive to

the BOJ's policy rates, increased 0.5 bps to 1.3%. The five-year

yield was flat at 1.705%.