(Updates with details and fresh price levels, as of 0630 GMT)

By Brigid Riley

TOKYO, May 14 (Reuters) - Japanese government bond (JGB)

yields rose on Tuesday to their highest levels in more than a

decade, as bets grew that the Bank of Japan (BOJ) could raise

its interest rates in coming months.

In a hawkish signal on Monday, Japan's central bank

unexpectedly cut the amount of bonds it offered to buy in a

regular purchase operation.

BOJ Governor Kazuo Ueda "has been very clear: he wants the

market to find the right balance of long-term yields, instead of

relying on the BOJ," said Ales Koutny, head of international

rates at Vanguard.

The reduction in the JGB purchase amount has fuelled bets

for another rate hike, pushing the 10-year JGB yield

as high as a six-month peak of 0.965%.

The two-year JGB yield, which corresponds

closely to policy expectations, was up 1 basis point at 0.340%,

after touching its highest since June 2009 at 0.345%.

Some market participants believe the yen's excessive

weakness may be forcing the BOJ's hand, with many suspecting

that to be the reason behind the cut to JGB offer amounts, said

Katsutoshi Inadome, a senior strategist at Sumitomo Mitsui Trust

Asset Management.

"An increasing number of people in the market are thinking

if the aim really is to stop the yen's depreciation, then

wouldn't the BOJ raise rates as soon as July even?" he said,

adding that the central bank was also expected to begin

quantitative tightening at its June meeting.

Questions, however, remain about the state of the Japanese

economy. The country's first-quarter gross domestic product

numbers, due on Thursday, are expected to show a contraction.

Japanese Finance Minister Shunichi Suzuki said on Tuesday

the government will work with the BOJ on currency market matters

to ensure there is no friction between their mutual policy

objectives.

An auction for the five-year bond saw decent demand despite

concerns that higher expectations of an imminent rate hike would

put off investors. The five-year yield eased to

0.555% after climbing to a 13-year peak of 0.565%.

The 20-year JGB yield hit an 11-year peak of

1.770% before edging down to 1.765%.

The 30-year JGB yield touched 2.055%, its

highest since July 2011.