TOKYO, Sept 26 (Reuters) - Japanese government bond

(JGB) yields rose on Thursday, as investors took a cautious

stance amid an auction of 40-year bonds, a day before a key

election to pick Japan's next leader.

The 10-year JGB yield was up 1.5 basis points

(bps) at 0.825%, while 10-year JGB futures fell 0.17

points to 144.84 yen.

The largest rise was seen on the superlong end of the curve,

with the 40-year JGB yield up 5 bps at 2.375% and

the 30-year JGB yield climbing 4 bps to 2.07%.

However, despite concerns that an auction of 40-year JGBs

could see tepid sales, the bid-to-cover ratio, a common measure

of demand at these events, improved to 2.58 from 2.20 in July.

Recent communications from the Bank of Japan indicate

policymakers are in no hurry to raise interest rates further.

That's left many investors feeling that there is little risk

of yields surging sharply higher for now, Noriatsu Tanji, chief

bond strategist at Mizuho Securities, wrote in a note on

Wednesday.

The election to choose Japan's ruling Liberal Democratic

Party's new leader is due on Friday, with three candidates seen

leading a pack of politicians vying for the top spot.

Analysts say Sanae Takaichi, an advocate of deceased former

premier Shinzo Abe's "Abenomics" stimulus policies, in

particular has investors pondering risks of a fiscal expansion.

Investors are likely waiting to see how the election plays

out before pricing anything in, said Makoto Suzuki, senior bond

strategist at Okasan Securities.

"It's still a blank slate. We don't know which way it will

go."

A rise overnight in U.S. Treasury yields, which the JGB

tends to track, added additional upward pressure.

The 20-year JGB yield rose 2 bps to 1.65%.

The two-year JGB yield was flat at 0.345%,

while the five-year yield ticked up 1 bp to 0.47%.