TOKYO, March 27 (Reuters) - The yield on five-year

Japanese government bonds climbed to a new record high on

Friday, as the escalating U.S.-Israeli war on Iran fuelled

inflation concerns and strengthened expectations of faster

interest rate hikes by major central banks.

The five-year yield rose 3 basis points to

1.770%, while the benchmark 10-year JGB yield

rose 3 bps to 2.300%. Yields move inversely to bond prices.

"The JGB markets are likely to remain at the mercy of

external factors, including headlines about the Middle East

situation and developments in crude oil and foreign exchange

markets," said Kazuya Fujiwara, bond strategist at Mitsubishi

UFJ Morgan Stanley Securities.

The two-year yield, which is most sensitive to

Bank of Japan policy rates and touched a nearly three-decade

high on Thursday, advanced 1.5 bps to 1.35%.

Japan remains highly exposed to spikes in crude oil prices

due to its heavy reliance on imported energy. Higher oil costs

tend to feed into domestic inflation, eroding the real value of

fixed-income securities and adding pressure on the central banks

to tighten monetary policy.

Other tenors were yet to be traded as of 0029 GMT.