TOKYO, March 31 (Reuters) - Japanese government bonds

(JGBs) held steady on Tuesday ahead of a sale of two-year

securities, with markets assessing the central bank's response

to rising inflationary pressures from the Middle East crisis.

The benchmark 10-year JGB yield

fell 0.5 basis point (bp) to 2.350% after

reaching as high as 2.390% on Monday, a level not seen since

February 1999. The five-year yield edged up 1 bp

to 1.790%. Yields move inversely to bond prices.

Core consumer prices in Tokyo rose 1.7% in March from a year

earlier, data showed on Tuesday, staying below the Bank of

Japan's 2% target for a second straight month as the effect of

fuel subsidies offset rising costs from a weak yen.

"Yields on U.S. and European bonds have been falling in defiance

of rising oil prices, suggesting that a recession in the West is

now being viewed as a realistic risk amid the prolonged

conflict," said Ataru Okumura, a senior strategist at SMBC Nikko

Securities. "Since we cannot be certain that the Bank of Japan

will proceed with rate hikes at a rapid pace, medium-term JGBs

are likely to enter a period of consolidation for the time

being."

The Ministry of Finance is due to sell about 2.8 trillion yen

($17.53 billion) of two-year JGBs later in the day. The two-year

yield, the tenor most sensitive to BOJ policy

rates, increased 0.5 bp to 1.36% after last week reaching 1.38%,

the highest since May 1995.

($1 = 159.7300 yen)