TOKYO, June 2 (Reuters) - Japan's 10-year government

bond yield fell sharply on Tuesday as a strong auction for the

same maturity prompted traders to scoop up the debt.

The benchmark 10-year JGB yield fell 11 basis

points (bps) to 2.57%, its lowest since May 13. Yields move

inversely to bond prices.

"Investors who were not able to buy the 10-year bonds at the

auction bought the debt, which pushed the yields lower," said

Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ

Asset Management.

"But it is questionable whether this momentum will last for

a long time. Given the pace of inflation in Japan and potential

growth, the 10-year yield looks low," he added.

The finance ministry auctioned about 2.6 trillion yen

($16.28 billion) of 10-year bonds earlier in the day. Its lowest

accepted price exceeded market expectations, indicating a strong

result.

The 10-year bonds have been underperforming other tenors, in

part due to the absence of core buyers, strategists said.

"The rise of the yields on two- and five-year bonds was

limited also because they have already priced in the expected

interest rate hikes by the Bank of Japan," said Katsutoshi

Inadome, senior strategist at Sumitomo Mitsui Trust Asset

Management.

The rise in yields on longer ends was also limited as

concerns over worsening fiscal health have eased amid reports

on the size of the extra budget.

Prime Minister Sanae Takaichi said last week Japan's government

will compile an extra budget of some 3 trillion yen.

The market did not react to a report released earlier in the

day about a food tax reduction.

Japan is considering rolling out a two-year cut to an 8% levy on

food sales from April next year, the Mainichi newspaper reported

on Monday.

The 20-year JGB yield fell 4 bps to 3.550%.

The 30-year yield slipped 6.5 bps to 3.855%. The

yield on the 40-year JGB inched down 0.5 bp to

3.81%.

The two-year yield was down 2.5 bps to 1.375%.

The five-year yield fell 6.5 bps to 1.85%.

($1 = 159.7100 yen)